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Banks' Liquidity Buffers and the Role of Liquidity Regulation

Clemens Bonner (), Iman Lelyveld and Robert Zymek ()

DNB Working Papers from Netherlands Central Bank, Research Department

Abstract: We assess the determinants of banks' liquidity holdings using balance sheet data for nearly 7000 banks from 30 OECD countries over a ten-year period. We highlight the role of several bank-specific, institutional and policy variables in shaping banks' liquidity risk management. Our main question is whether the presence of liquidity regulation substitutes or complements banks' incentives to hold liquid assets. Our results reveal that in the absence of liquidity regulation, the determinants of banks' liquidity buffers are a combination of bank-specific (business model, profitability, deposit holdings, size) and country-specific (disclosure requirements, concentration of the banking sector) variables. While most incentives are substituted by liquidity regulation, a bank's disclosure requirement and size remain significant. A key takeaway from our analysis is that the complementary nature of disclosure and liquidity requirements provides a strong rationale for considering them jointly in the design of regulation.

Keywords: Liquidity; Regulation; Disclosure; Business Models (search for similar items in EconPapers)
JEL-codes: G20 G21 G28 (search for similar items in EconPapers)
Date: 2013-09
New Economics Papers: this item is included in nep-ban, nep-cba and nep-rmg
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Citations: View citations in EconPapers (8) Track citations by RSS feed

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Journal Article: Banks’ Liquidity Buffers and the Role of Liquidity Regulation (2015) Downloads
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