The Effects of Liquidity Regulation on Bank Assets and Liabilities

International Journal of Central Banking (IJCB), 2016

27 Pages Posted: 24 Jul 2017

See all articles by Patty Duijm

Patty Duijm

De Nederlandsche Bank

Peter Wierts

Bank for International Settlements (BIS); VU University Amsterdam

Date Written: June 1, 2016

Abstract

Under Basel III rules, banks became subject to a liquidity coverage ratio (LCR) from 2015 onward, to promote short-term resilience. Investigating the effects of such liquidity regulation on bank balance sheets, we find (i) cointegration of liquid assets and liabilities, to maintain a short-term liquidity buffer; and (ii) that adjustment in the liquidity ratio is skewed towards the liability side. This finding contrasts with established wisdom that compliance with the LCR is mainly driven by changes in liquid assets. Moreover, microprudential regulation has not prevented a procyclical liquidity cycle in secured financing that is strongly correlated with leverage.

JEL Classification: E44, G21, G28

Suggested Citation

Duijm, Patty and Wierts, Peter, The Effects of Liquidity Regulation on Bank Assets and Liabilities (June 1, 2016). International Journal of Central Banking (IJCB), 2016, Available at SSRN: https://ssrn.com/abstract=3005996

Patty Duijm (Contact Author)

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

Peter Wierts

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

VU University Amsterdam ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands

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