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The Impact of Liquidity Regulation on Bank Intermediation

  • Bonner, Clemens
  • Eijffinger, Sylvester C W

We analyze the impact of non-compliance with a requirement similar to the Basel III Liquidity Coverage Ratio and its impact on bank intermediation applying Regression Discontinuity Designs. Using a unique dataset on Dutch banks, we show that non-compliance with a liquidity requirement causes banks to pay and charge higher interest rates as well as to increase borrowing and decrease lending on the long-term interbank market. Apart from lending rates, the short-term market is unlikely to be affected by the requirement. While non-compliance with a liquidity requirement does not seem to directly affect corporate lending rates, we find evidence that institutions with a liquidity deficiency turn to the long-term interbank rate as reference for lending to non-financial institutions.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 9124.

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Date of creation: Sep 2012
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Handle: RePEc:cpr:ceprdp:9124
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