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Macro-effects of higher capital and liquidity requirements for banks

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  • Robert-Paul Berben
  • Beata Bierut
  • Jan Willem van den End
  • Jan Kakes

Abstract

The crisis has demonstrated that the ability of banks to absorb shocks needs to be strengthened. The financial tensions that have emerged repeatedly since 2007 could assume such serious proportions because the exposure of the banks was too high and too risky in relation to their capital reserves. As a result, they had too little capacity to absorb the losses on the market positions they had taken and on the loans they had granted. Banks were forced to respond by reducing their highrisk positions. The liquidity buffers held by banks were also generally inadequate, making them vulnerable when market liquidity dried up. Against this backdrop, investors lost confidence at the height of the crisis in the autumn of 2008, and governments had to step in by recapitalising some banks and guaranteeing bank debts. Central banks made liquidity more readily available because the banks were unable to raise funding in the markets, including the interbank market.

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Bibliographic Info

Paper provided by Netherlands Central Bank, Research Department in its series DNB Occasional Studies with number 803.

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Date of creation: Oct 2010
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Handle: RePEc:dnb:dnbocs:803

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  1. William Francis & Matthew Osborne, 2009. "Bank regulation, capital and credit supply: Measuring the Impact of Prudential Standards," Occasional Papers 36, Financial Services Authority.
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  5. Mathias Drehmann & Claudio Borio & Leonardo Gambacorta & Gabriel Jiminez & Carlos Trucharte, 2010. "Countercyclical capital buffers: exploring options," BIS Working Papers 317, Bank for International Settlements.
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  10. Ray Barrell & E Philip Davis & Tatiana Fic & Dawn Holland & Simon Kirby & Iana Liadze, 2009. "Optimal Regulation of Bank Capital and Liquidity: How to Calibrate New International Standards," Occasional Papers 38, Financial Services Authority.
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Cited by:
  1. Morgan, Peter J. & Pontines, Victor, 2013. "An Asian Perspective on Global Financial Reforms," ADBI Working Papers 433, Asian Development Bank Institute.

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