Liquidity regulation, bank capital ratio, and interbank rate

Chao Huang and Fernando Moreira

Economics Letters, 2024, vol. 242, issue C

Abstract: We study the impact of the Basel III liquidity coverage ratio (LCR) on bank capital ratio and the interbank rate in a traditional banking model. We find that inappropriate parameters assigned to calculate High-Quality Liquid Assets (HQLAs) and Net Cash Flows (NCOs) would lower the equilibrium capital ratio especially when the required liquidity ratio is strengthened. In addition, these regulatory parameters may have macro-prudential effects to steer the interbank rate.

Keywords: Liquidity requirements; Bank stability; Basel accords; Bank capital; Interbank markets (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:242:y:2024:i:c:s0165176524003379

DOI: 10.1016/j.econlet.2024.111853

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