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A macroprudential approach to address liquidity risk with the Loan-to-Deposit ratio

Jan Willem End ()

DNB Working Papers from Netherlands Central Bank, Research Department

Abstract: This paper maps the empirical features of the Loan-to-Deposit (LTD) ratio with an eye on using it in macroprudential policy to mitigate liquidity risk. We inspect the LTD trends and cycles of 11 euro area countries by filtering methods and analyze the interaction between loans and deposits. We propose that the trend of the LTD ratio is maintained within an upper and lower bound to avoid bad equilibria. To manage the LTD ratio between the boundaries we formulate two macroprudential rules. One that stimulates banks to issue retail deposits in an upturn and one that incentivizes banks to create loanable funds to support lending in a downturn, facilitated by a sufficiently long adjustment period.

Keywords: Financial stability; Banks; Liquidity; Regulation (search for similar items in EconPapers)
JEL-codes: C15 E44 G21 G32 G28 (search for similar items in EconPapers)
Date: 2013-02
New Economics Papers: this item is included in nep-ban and nep-cba
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https://www.dnb.nl/en/binaries/Working%20Paper%20372_tcm47-286219.pdf (application/pdf)

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Journal Article: A macroprudential approach to address liquidity risk with the loan-to-deposit ratio (2016) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:dnb:dnbwpp:372

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