The Last Taxi: LCR Buffers and Bank Liquidity Provision

Matthew Darst, Lucia Gurrieri, Arazi Lubis and Alexandros Vardoulakis
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Alexandros Vardoulakis: https://www.federalreserve.gov/econres/alexandros-vardoulakis.htm

No 2026-051, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: This paper examines whether regulatory liquidity buffers enable banks to support corporate borrowers during financial stress. Using confidential bank-firm credit data and handcollected Liquidity Coverage Ratio regulation (LCR) disclosures during COVID-19, we find that banks with higher LCR buffers above the regulatory minimum provided significantly more credit to firms with large undrawn credit lines in March 2020. Critically, only buffers, not overall LCR levels, matter, revealing that the regulatory minimum operates as a binding constraint during stress. The effect is concentrated among high-quality borrowers with clean credit profiles and disappears by mid-2020, confirming that LCR buffers provide selective, temporary liquidity insurance during acute stress.

Keywords: liquidity regulation; credit lines; bank lending; financial crises; regulatory buffers (search for similar items in EconPapers)
JEL-codes: G01 G21 G28 (search for similar items in EconPapers)
Pages: 28 p.
Date: 2026-07-17
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:103560

DOI: 10.17016/FEDS.2026.051

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