Did Banks Subject to LCR Reduce Liquidity Creation?

Daniel Roberts, Asani Sarkar and Or Shachar

No 20181015, Liberty Street Economics from Federal Reserve Bank of New York

Abstract: Banks traditionally provide loans that are funded mostly by deposits and thereby create liquidity, which benefits the economy. However, since the loans are typically long-term and illiquid, whereas the deposits are short-term and liquid, this creation of liquidity entails risk for the bank because of the possibility that depositors may ?run? (that is, withdraw their deposits on short notice). To mitigate this risk, regulators implemented the liquidity coverage ratio (LCR) following the financial crisis of 2007-08, mandating banks to hold a buffer of liquid assets. A side effect ofthe regulation, however, is a reduction in liquidity creation by banks subject to LCR, as we find in our recent paper.

Keywords: Liquidity Coverage Ratio; liquidity creation; HQLA; banks; loans (search for similar items in EconPapers)
JEL-codes: G1 (search for similar items in EconPapers)
Date: 2018-10-15
References: Add references at CitEc
Citations:

Downloads: (external link)
https://libertystreeteconomics.newyorkfed.org/2018 ... uidity-creation.html (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fednls:87287

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Liberty Street Economics from Federal Reserve Bank of New York Contact information at EDIRC.
Bibliographic data for series maintained by Gabriella Bucciarelli ().