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THE IMPACTS OF FINANCIAL REGULATIONS: SOLVENCY AND LIQUIDITY IN THE POST-CRISIS PERIOD

Colleen Baker, Christine M. Cumming and Julapa Jagtiani

No 17-10, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: This paper discusses the new financial regulations in the post?financial crisis period, focusing on capital and liquidity regulations. Basel III and the capital stress tests introduced new requirements and new definitions while retaining the structure of the pre-2010 requirements. The total number of requirements increased, making it difficult to determine which constraints are binding. We find that the new common equity tier 1 (CET1) and Level 1 high-quality liquid assets (HQLAs) are the binding constraints at large U.S. banks, especially for banks that are active in capital markets activities. Banks have been holding more CET1 and a larger share of Level 1 HQLAs since the financial crisis of 2007 to 2009. We also find that the market pricing of bank debt appears to have responded to changes in liquidity measures, especially at large capital markets banks. The Basel III regulatory capital ratios appear to have little direct influence on spreads.

Keywords: bank capital regulations; bank liquidity; CET1; high-quality liquid assets (HQLA); Basel III; Dodd–Frank Act; financial stability (search for similar items in EconPapers)
JEL-codes: G12 G18 G21 G28 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2017-04-24
New Economics Papers: this item is included in nep-acc, nep-cba, nep-cfn and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Journal Article: The impacts of financial regulations: solvency and liquidity in the post-crisis period (2017) Downloads
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