A Simple Macroprudential Liquidity Buffer

25 Pages Posted: 6 Feb 2015

See all articles by Philipp Hochreiter

Philipp Hochreiter

Austrian Financial Market Authority

Daniel Hardy

International Monetary Fund (IMF)

Date Written: December 2014

Abstract

A mechanism is proposed that aims to reduce the risk of a banking sector liquidity crisis — which is a quintessentially systemic event and thus the object of macroprudential policy — and moderate the effects of a crisis should one occur. The instrument would give banks more incentive to build up buffers of systemically liquid assets as a proportion of their total liabilities, yet these buffers would be usable in times of stress. The modalities of the instrument are considered with a view to making it effective, efficient, and robust.

Keywords: Banking sector, Liquidity, Bank financing, Systemic risk, Banking crisis, Macroprudential policies and financial stability, Crisis management, liabilities, financial crises, instrument, liability, financial institutions, instruments, liquid assets, liquidity crisis, market, mortgages, financial system, reserve requirements, liability side, monetary fund, holdings, markets, properties, short-term asset, financial crisis, investments, central bank, market economies, banking crises, credit risk, capital markets, balance sheet, emerging market economies, foreign investors, capital requirements, price changes, loan, defaults, government policy, financial market, balance of payments, share, long-t

JEL Classification: E32, G21, G28

Suggested Citation

Hochreiter, Philipp and Hardy, Daniel, A Simple Macroprudential Liquidity Buffer (December 2014). IMF Working Paper No. 14/235, Available at SSRN: https://ssrn.com/abstract=2561280

Philipp Hochreiter

Austrian Financial Market Authority ( email )

Austria

Daniel Hardy (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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