The Impact of Liquidity Regulation on Bank Intermediation

Sylvester Eijffinger and Clemens Bonner

No 9124, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We analyze the impact of non-compliance with a requirement similar to the Basel III Liquidity Coverage Ratio and its impact on bank intermediation applying Regression Discontinuity Designs. Using a unique dataset on Dutch banks, we show that non-compliance with a liquidity requirement causes banks to pay and charge higher interest rates as well as to increase borrowing and decrease lending on the long-term interbank market. Apart from lending rates, the short-term market is unlikely to be affected by the requirement. While non-compliance with a liquidity requirement does not seem to directly affect corporate lending rates, we find evidence that institutions with a liquidity deficiency turn to the long-term interbank rate as reference for lending to non-financial institutions.

Keywords: Banks; Financial intermediation; Monetary policy; Finance; Liquidity (search for similar items in EconPapers)
JEL-codes: E42 G18 G21 (search for similar items in EconPapers)
Date: 2012-09
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mac and nep-mon
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Citations: View citations in EconPapers (11)

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Journal Article: The Impact of Liquidity Regulation on Bank Intermediation (2016)
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