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The Liquidity Regulation and Savings Banks’ Liquid Assets


  • Dorothee Holl

    (Deutsche Bundesbank, Wilhelm-Epstein-Straße 14, D-60431 Frankfurt/M)

  • Andrea Schertler

    (University of Groningen, Faculty of Economics and Business, Finance Department, Nettelbosje 2, NL-9747 AE Groningen/ Niederlande)


For their short-term payment obligations, savings banks hold substantially more liquid assets than the liquidity regulation requires. This paper investigates whether sight deposits, an important funding source for savings banks, help in explaining liquid asset holdings in excess of regulatory requirements. We analyze whether savings banks transform sight deposits in illiquid assets less intensively than is permitted because (i) the liquidity regulation underestimates actual withdrawal rates (underestimation effect) and/or (ii) savings banks are subject to limits in their lending to non-banks that they do not offset by, for instance, mediumterm interbank lending or fixed asset holdings (lending effect). In our sample, we do not find the underestimation effect to be applicable as actual deposit withdrawal rates are in most cases lower than the regulatorily specified rate. However, we find the lending effect to be at work: Savings banks with low shares of loans to non-banks do not transform sight deposits into illiquid assets as intensively as savings banks with high shares of non-bank loans. Our analysis does not only show that liquid assets positively depend on sight deposits, but also shines a light on how bank size and the individual bank’s position in the interbank market affect liquid assets.

Suggested Citation

  • Dorothee Holl & Andrea Schertler, 2010. "The Liquidity Regulation and Savings Banks’ Liquid Assets," Credit and Capital Markets, Credit and Capital Markets, vol. 43(4), pages 533-558.
  • Handle: RePEc:kuk:journl:v:43:y:2010:i:4:p:533-558

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    References listed on IDEAS

    1. Hamerle, Alfred & Knapp, Michael & Liebig, Thilo & Wildenauer, Nicole, 2005. "Incorporating prediction and estimation risk in point-in-time credit portfolio models," Discussion Paper Series 2: Banking and Financial Studies 2005,13, Deutsche Bundesbank.
    2. Jochen Lawrenz, 2008. "Assessing the Estimation Uncertainty of Default Probabilities," Credit and Capital Markets, Credit and Capital Markets, vol. 41(2), pages 217-238.
    3. Christensen, Jens H.E. & Hansen, Ernst & Lando, David, 2004. "Confidence sets for continuous-time rating transition probabilities," Journal of Banking & Finance, Elsevier, vol. 28(11), pages 2575-2602, November.
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    Cited by:

    1. Frank Schmielewski & Thomas Wein, 2015. "Are private banks the better banks? An insight into the principal–agent structure and risk-taking behavior of German banks," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 39(3), pages 518-540, July.
    2. Frank Schmielewski & Thomas Wein, 2012. "Are private banks the better banks? An insight into the principal-agent structure and risk-taking behavior of German banks," Working Paper Series in Economics 236, University of Lüneburg, Institute of Economics.

    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages


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