Benefits and costs of liquidity regulation
Marie Hoerova (),
Caterina Mendicino (),
Kalin Nikolov (),
Glenn Schepens and
Skander Van den Heuvel
No 2169, Working Paper Series from European Central Bank
This paper investigates the costs and benefits of liquidity regulation. We find that liquidity tools are beneficial but cannot completely remove the need for Lender of Last Resort (LOLR) interventions by the central bank. Full compliance with current Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) rules would have reduced banks’ reliance on publicly provided liquidity during the global financial crisis without removing such assistance altogether. The paper also investigates the output costs of introducing the LCR and NSFR using two macro-financial models. We find these costs to be modest. JEL Classification: E44, E58, G21, G28
Keywords: banking; capital requirements; Central bank; Lender of Last Resort; liquidity regulation (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20182169
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