Quality is our asset: The international transmission of liquidity regulation

Dennis Reinhardt, Stephen Reynolds, Rhiannon Sowerbutts and Carlos Eduardo van Hombeeck

Journal of Banking & Finance, 2023, vol. 154, issue C

Abstract: We examine how banks’ cross-border lending reacts to changes in the intensity of liquidity regulation using a new dataset on the UK’s Individual Liquidity Guidance. An increase in requirements reduces banks’ cross-border lending growth to banks and non-banks. But banks’ business models determine how they adjust: banks with higher deposit shares, such as those with UK retail operations, protect lending more; banks also preserve lending to countries they do most business, cutting elsewhere; foreign subsidiaries from countries not eligible to issue High Quality Liquid Assets (HQLA) show the strongest reduction in lending; in contrast, subsidiaries from HQLA-issuing countries cut intragroup lending.

Keywords: Liquidity regulation; Liquidity requirements; External lending; Intensity of prudential regulations (search for similar items in EconPapers)
JEL-codes: F36 G21 G28 (search for similar items in EconPapers)
Date: 2023
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Working Paper: Quality is our asset: the international transmission of liquidity regulation (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:154:y:2023:i:c:s0378426623001255

DOI: 10.1016/j.jbankfin.2023.106919

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