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Banks' Liquidity Buffers and the Role of Liquidity Regulation

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  • Clemens Bonner
  • Iman van Lelyveld
  • Robert Zymek

Abstract

We assess the determinants of banks' liquidity holdings using balance sheet data for nearly 7000 banks from 30 OECD countries over a ten-year period. We highlight the role of several bank-specific, institutional and policy variables in shaping banks' liquidity risk management. Our main question is whether the presence of liquidity regulation substitutes or complements banks' incentives to hold liquid assets. Our results reveal that in the absence of liquidity regulation, the determinants of banks' liquidity buffers are a combination of bank-specific (business model, profitability, deposit holdings, size) and country-specific (disclosure requirements, concentration of the banking sector) variables. While most incentives are substituted by liquidity regulation, a bank's disclosure requirement and size remain significant. A key takeaway from our analysis is that the complementary nature of disclosure and liquidity requirements provides a strong rationale for considering them jointly in the design of regulation.

Suggested Citation

  • Clemens Bonner & Iman van Lelyveld & Robert Zymek, 2013. "Banks' Liquidity Buffers and the Role of Liquidity Regulation," DNB Working Papers 393, Netherlands Central Bank, Research Department.
  • Handle: RePEc:dnb:dnbwpp:393
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    Cited by:

    1. Clemens Bonner, 2016. "Preferential Regulatory Treatment and Banks' Demand for Government Bonds," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 48(6), pages 1195-1221, September.
    2. repec:eee:jfinin:v:35:y:2018:i:pb:p:30-44 is not listed on IDEAS
    3. de Haan, Leo & van den End, Jan Willem, 2013. "Bank liquidity, the maturity ladder, and regulation," Journal of Banking & Finance, Elsevier, vol. 37(10), pages 3930-3950.
    4. Banerjee, Ryan N. & Mio, Hitoshi, 2018. "The impact of liquidity regulation on banks," Journal of Financial Intermediation, Elsevier, vol. 35(PB), pages 30-44.
    5. Gropp, Reint & Radev, Deyan, 2017. "Social centralization, bank integration and the transmission of lending shocks," SAFE Working Paper Series 174, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.
    6. Clemens Bonner & Sylvester C. W. Eijffinger, 2016. "The Impact of Liquidity Regulation on Bank Intermediation," Review of Finance, European Finance Association, vol. 20(5), pages 1945-1979.
    7. repec:eee:finsta:v:33:y:2017:i:c:p:311-330 is not listed on IDEAS
    8. Gropp, Reint & Radev, Deyan, 2017. "International banking conglomerates and the transmission of lending shocks across borders," SAFE Working Paper Series 175, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.
    9. Raja Almarzoqi & Sami Ben Naceur & Alessandro Scopelliti, 2015. "How Does Bank Competition Affect Solvency, Liquidity and Credit Risk? Evidence from the MENA Countries," IMF Working Papers 15/210, International Monetary Fund.
    10. Karolina Patora, 2016. "What drives the liquidity position of foreign-owned banks? The case of Poland," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 6(6), pages 1-1.
    11. Neyer, Ulrike & Sterzel, André, 2018. "Preferential treatment of government bonds in liquidity regulation: Implications for bank behaviour and financial stability," DICE Discussion Papers 301, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    12. Liquidity, ECB Task Force on Systemic & Bonner, Clemens & Wedow, Michael, 2018. "Systemic liquidity concept, measurement and macroprudential instruments," Occasional Paper Series 214, European Central Bank.
    13. Hans Degryse & Sanja Jakovljević & Steven Ongena, 2015. "A Review of Empirical Research on the Design and Impact of Regulation in the Banking Sector," Annual Review of Financial Economics, Annual Reviews, vol. 7(1), pages 423-443, December.

    More about this item

    Keywords

    Liquidity; Regulation; Disclosure; Business Models;

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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