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Bank Liquidity Creation, Systemic Risk, and Basel Liquidity Regulations
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.
Cite this item
Daniel Roberts & Asani Sarkar & Or Shachar, Bank Liquidity Creation, Systemic Risk, and Basel Liquidity Regulations, Federal Reserve Bank of New York, Staff Reports 852, 01 Jun 2018, revised 01 Aug 2019.
Note: Previous title: “Bank Liquidity Provision and Basel Liquidity Regulations”
- G01 - Financial Economics - - General - - - Financial Crises
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
Keywords: LCR; banks; liquidity creation
This item with handle RePEc:fip:fednsr:852
is also listed on EconPapers
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