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How Useful Is Basel III's Liquidity Coverage Ratio? Evidence From US Bank Holding Companies

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  • Brian Du

Abstract

This paper approximates a construction of Basel III's Liquidity Coverage Ratio (LCR) for US bank holding companies. This study examines (i) the LCR's marginal contribution to a firm's systemic risk and (ii) whether the LCR can predict ex ante which banks are most exposed to systemic losses in a true systemic event. Panel regressions from 2002 to 2015 show that the LCR is associated with lower relative systemic risk, measured by ΔCoVaR. The LCR may be used conjunctively with marginal expected shortfall to predict a firm's systemic losses during the crisis of 2007–2008.

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  • Brian Du, 2017. "How Useful Is Basel III's Liquidity Coverage Ratio? Evidence From US Bank Holding Companies," European Financial Management, European Financial Management Association, vol. 23(5), pages 902-919, October.
    • Handle: RePEc:bla:eufman:v:23:y:2017:i:5:p:902-919
    DOI: 10.1111/eufm.12116
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    Cited by:

    1. Meriläinen, Jari-Mikko & Junttila, Juha, 2020. "The relationship between credit ratings and asset liquidity: Evidence from Western European banks," Journal of International Money and Finance, Elsevier, vol. 108(C).
    2. Farouq Altahtamouni & Shikhah Alyousef, 2021. "The Effect of Liquidity According to the Requirements of the Basel III Committee on the Profitability of Banks: Evidence from Saudi Banks," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(2), pages 439-463.
    3. Nguyen, Thach V.H. & Nguyen, Thai Vu Hong, 2022. "How do banks price liquidity? The role of market power," Global Finance Journal, Elsevier, vol. 53(C).
    4. I‐Ju Chen & Yu‐Yi Lee & Yong‐Chin Liu, 2020. "Bank liquidity, macroeconomic risk, and bank risk: Evidence from the Financial Services Modernization Act," European Financial Management, European Financial Management Association, vol. 26(1), pages 143-175, January.
    5. Brian Du, 2020. "Securitized banking and interest rate sensitivity," Review of Quantitative Finance and Accounting, Springer, vol. 54(3), pages 851-876, April.

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