The Risk-Taking Channel of Liquidity Regulations and Monetary Policy

Stephan Imhof (), Cyril Monnet and Shengxing Zhang

No 18.03, Working Papers from Swiss National Bank, Study Center Gerzensee

Abstract: We study the implications of liquidity regulations and monetary policy on depositmaking and risk-taking. Banks give risky loans by creating deposits that firms use to pay suppliers. Firms and banks can take more or less risk. In equilibrium, higher liquidity requirements always lower risk at the cost of lower investment. Nevertheless, a positive liquidity requirement is always optimal. Monetary conditions affect the optimal size of liquidity requirements, and the optimal size is countercyclical. It is only optimal to impose a 100% liquidity requirement when the nominal interest rate is sufficiently low.

Pages: 45 pages
Date: 2018-08
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge, nep-mac and nep-mon
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Citations: View citations in EconPapers (5)

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Related works:
Working Paper: The Risk-Taking Channel of Liquidity Regulations and Monetary Policy (2018)
Working Paper: The Risk-Taking Channel of Liquidity Regulations and Monetary Policy (2018)
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