The Effects of Liquidity Regulation on Bank Assets and Liabilities

Patty Duijm and Peter Wierts

International Journal of Central Banking, 2016, vol. 12, issue 2, 385-411

Abstract: Under Basel III rules, banks became subject to a liquidity coverage ratio (LCR) from 2015 onward, to promote shortterm resilience. Investigating the effects of such liquidity regulation on bank balance sheets, we find (i) cointegration of liquid assets and liabilities, to maintain a minimum short-term liquidity buffer; and (ii) that adjustment in the liquidity ratio is skewed towards the liability side. This finding contrasts with established wisdom that compliance with the LCR is mainly driven by changes in liquid assets. Moreover, microprudential regulation has not prevented a procyclical liquidity cycle in secured financing that is strongly correlated with leverage.

JEL-codes: E44 G21 G28 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (38)

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Related works:
Working Paper: The Effects of Liquidity Regulation on Bank Assets and Liabilities (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:ijc:ijcjou:y:2016:q:2:a:9

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