Liquidity, Solvency and Stability (Presentation Slides)

Abstract

Post crisis regulatory reform has focused on higher capital requirements and the implementation of liquidity requirements of two kinds.Is the post-crisis focus on both liquidity and capital requirements optimal, given the twin objectives of economic growth and financial stability? The answer depends on what you believe caused the financial crisis. Was it an insolvency crisis or a liquidity crisis? It is argued that post-crisis regulatory reform should focus on: Higher capital requirements; Lower or no liquidity requirements; Restricting consumer leverage; Improving financial literacy; Focusing on bank culture.