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The Last Taxi: LCR Buffers and Bank Liquidity Provision

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Abstract

This paper examines whether regulatory liquidity buffers enable banks to support corporate borrowers during financial stress. Using confidential bank-firm credit data and handcollected Liquidity Coverage Ratio regulation (LCR) disclosures during COVID-19, we find that banks with higher LCR buffers above the regulatory minimum provided significantly more credit to firms with large undrawn credit lines in March 2020. Critically, only buffers, not overall LCR levels, matter, revealing that the regulatory minimum operates as a binding constraint during stress. The effect is concentrated among high-quality borrowers with clean credit profiles and disappears by mid-2020, confirming that LCR buffers provide selective, temporary liquidity insurance during acute stress.

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  • Matt Darst & Lucia Gurrieri & Arazi Lubis & Alexandros Vardoulakis, 2026. "The Last Taxi: LCR Buffers and Bank Liquidity Provision," Finance and Economics Discussion Series 2026-051, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:103560
    DOI: 10.17016/FEDS.2026.051
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    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • 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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