Liquidity Regulation, Funding Costs and Corporate Lending
This paper analyzes the impact of a liquidity requirement similar to the Basel 3 Liquidity Coverage Ratio (LCR) on banks' funding costs and corporate lending rates. Using a dataset of 26 Dutch banks from January 2008 to December 2011, I find that banks which are just above/below their quantitative liquidity requirement do not charge higher interest rates for corporate lending. This effect is caused by banks being not able to pass on their increased funding costs in the interbank market to private sector clients, implying that banks do not have pricing power. The results are robust to including demand effects, solvency and loan characteristics. The analysis in this paper suggests that the current design of the LCR is unlikely to have a major impact on corporate lending rates.
|Date of creation:||Dec 2012|
|Date of revision:|
|Contact details of provider:|| Postal: Postbus 98, 1000 AB Amsterdam|
Web page: http://www.dnb.nl/en/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:dnb:dnbwpp:361. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Rob Vet)
If references are entirely missing, you can add them using this form.