EconPapers    
Economics at your fingertips  
 

The joint regulation of bank liquidity and bank capital

Robert DeYoung, Isabelle Distinguin and Amine Tarazi

Journal of Financial Intermediation, 2018, vol. 34, issue C, 32-46

Abstract: We study the liquidity behavior of commercial banks in response to negative capital shocks. Using pre-Basel III data, U.S. banks with assets less than $1 billion treated (unregulated) liquidity and (regulated) capital as substitutes. Following exogenous shocks to their regulatory capital ratios, these banks shifted away from loans, loan commitments, and dividend payouts, actions that both repaired their capital ratios and enhanced their liquidity positions. We find little similar behavior at larger banks. We conclude that a minimum capital constraint naturally mitigates liquidity risk at community banks, justifying the exemption of these banks from the Basel III liquidity standards.

Keywords: Bank capital; Bank liquidity; Basel III; Lending; Net stable funding ratio (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1042957318300123
Full text for ScienceDirect subscribers only

Related works:
Working Paper: The Joint Regulation of Bank Liquidity and Bank Capital (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinin:v:34:y:2018:i:c:p:32-46

Access Statistics for this article

Journal of Financial Intermediation is currently edited by Elu von Thadden

More articles in Journal of Financial Intermediation from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

 
Page updated 2019-10-10
Handle: RePEc:eee:jfinin:v:34:y:2018:i:c:p:32-46