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Global liquidity regulation - Why did it take so long?

Author

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  • Clemens Bonner
  • Paul Hilbers

Abstract

The purpose of this paper is to assess the history of global liquidity regulation until the revised Basel III proposals in 2013 and to analyze the interaction of capital regulation and banks' liquidity buffers. Our analysis suggests that regulating capital is associated with declining liquidity uffers. The interaction of liquidity regulation and monetary policy as well as the view that regulating capital also addresses liquidity risks were important factors hampering harmonized liquidity regulation. It appears that crisis-related supervisory momentum is an important factor behind most agreements on regulatory harmonization. In line with that, the drying up of funding and the subsequent liquidity problems during the 2007-08 financial crisis played a large role in the development of the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR).

Suggested Citation

  • Clemens Bonner & Paul Hilbers, 2015. "Global liquidity regulation - Why did it take so long?," DNB Working Papers 455, Netherlands Central Bank, Research Department.
  • Handle: RePEc:dnb:dnbwpp:455
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    File URL: https://www.dnb.nl/en/binaries/Working%20Paper%20455_tcm47-317685.pdf
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    References listed on IDEAS

    as
    1. Viral V. Acharya & Ouarda Merrouche, 2013. "Precautionary Hoarding of Liquidity and Interbank Markets: Evidence from the Subprime Crisis," Review of Finance, European Finance Association, vol. 17(1), pages 107-160.
    2. Acharya, Viral V. & Schnabl, Philipp & Suarez, Gustavo, 2013. "Securitization without risk transfer," Journal of Financial Economics, Elsevier, vol. 107(3), pages 515-536.
    3. Banerjee, Ryan N. & Mio, Hitoshi, 2018. "The impact of liquidity regulation on banks," Journal of Financial Intermediation, Elsevier, vol. 35(PB), pages 30-44.
    4. Adrian, Tobias & Shin, Hyun Song, 2010. "Liquidity and leverage," Journal of Financial Intermediation, Elsevier, vol. 19(3), pages 418-437, July.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. de Bandt Olivier & Lecarpentier Sandrine & Pouvelle Cyril, 2020. "Determinants of Banks’ Liquidity: a French Perspective on Interactions between Market and Regulatory Requirements," Working papers 782, Banque de France.
    2. Acosta-Smith, Jonathan & Arnould, Guillaume & Milonas, Kristoffer & Vo, Quynh-Anh, 2019. "Capital and liquidity interaction in banking," Bank of England working papers 840, Bank of England, revised 22 Jun 2020.
    3. Tafirei Mashamba & Farai Kwenda, 2017. "A Look at the Liquidity Management Practices of Banks in South Africa," Journal of Economics and Behavioral Studies, AMH International, vol. 9(3), pages 113-120.
    4. Yure Lage Nuic & Cleysson Ribeiro Vieira & Marcos Soares da Silva, 2016. "The Determinants of Structural Liquidity in Brazil: what to expect for the NSFR?," Working Papers Series 443, Central Bank of Brazil, Research Department.
    5. Sitikantha Pattanaik & Rajesh Kavediya & Angshuman Hait, 2018. "Basel III liquidity coverage ratio and the operating target of monetary policy: the unintended discord," Journal of Banking Regulation, Palgrave Macmillan, vol. 19(2), pages 160-173, April.
    6. Eva Liebmann & Joe Peek, 2015. "Global standards for liquidity regulation," Current Policy Perspectives 15-3, Federal Reserve Bank of Boston.
    7. Foly Ananou & Amine Tarazi & John O.S Wilson, 2020. "Liquidity Regulation and Bank Lending," Working Papers hal-02516749, HAL.
    8. Bonner, Clemens & Wedow, Michael & Budnik, Katarzyna & Koban, Anne & Kok, Christoffer & Laliotis, Dimitrios & Meller, Barbara & Melo, Ana Sofia & Moldovan, Iulia & Schmitz, Stefan & Couaillier, Cyril , 2018. "Systemic liquidity concept, measurement and macroprudential instruments," Occasional Paper Series 214, European Central Bank.

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    More about this item

    Keywords

    Regulation; Policy; Liquidity; Banks;
    All these keywords.

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System

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