Report

Bank Liquidity Creation, Systemic Risk, and Basel Liquidity Regulations


Abstract: We find that banks subject to the Liquidity Coverage Ratio (LCR banks) create less liquidity per dollar of assets in the post-LCR period than non-LCR banks by, in part, lending less. However, we also find that LCR banks are more resilient as they contribute less to fire-sale risk, relative to non-LCR banks. We estimate the net after-tax benefits from reduced lending and fire-sale risk to be about 1.4 percent of assets in 2013:Q2-2014 for large banks. Our findings, which we show are unlikely to result from capital regulations, highlight the trade-off between lower liquidity creation and greater resilience from liquidity regulations.

Keywords: LCR; banks; liquidity creation;

JEL Classification: G01; G21; G28;

Access Documents

File(s): File format is text/html https://www.newyorkfed.org/research/staff_reports/sr852.html
Description: Summary

File(s): File format is application/pdf https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr852.pdf
Description: Full text

File(s): File format is application/pdf https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr852_appendix.pdf
Description: Appendix

Authors

Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Staff Reports

Publication Date: 2019-08-01

Number: 852

Note: Previous title: “Bank Liquidity Provision and Basel Liquidity Regulations”