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Liquidity Policies and Systemic Risk

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  • Tobias Adrian
  • Nina Boyarchenko

Abstract

One of the most innovative and potentially far-reaching consequences of regulatory reform since the financial crisis has been the development of liquidity regulations for the banking system. While bank regulation traditionally focuses on requiring a minimum amount of capital, liquidity requirements impose a minimum amount of liquid assets. In this post, we provide a conceptual framework that allows us to evaluate the impact of liquidity requirements on economic growth, the creation of systemic risk, and household welfare. Importantly, the framework addresses both liquidity requirements and capital requirements, thus allowing the study of trade-offs and complementarities between these regulatory tools. The reader will find a more detailed discussion in our recent staff report ?Liquidity Policies and Systemic Risk.?

Suggested Citation

  • Tobias Adrian & Nina Boyarchenko, 2014. "Liquidity Policies and Systemic Risk," Liberty Street Economics 20140417, Federal Reserve Bank of New York.
  • Handle: RePEc:fip:fednls:86941
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    References listed on IDEAS

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    Cited by:

    1. Simona E. Cociuba & Malik Shukayev & Alexander Ueberfeldt, 2019. "Managing Risk Taking With Interest Rate Policy And Macroprudential Regulations," Economic Inquiry, Western Economic Association International, vol. 57(2), pages 1056-1081, April.
    2. Francisco Covas & John C. Driscoll, 2014. "Bank Liquidity and Capital Regulation in General Equilibrium," Finance and Economics Discussion Series 2014-85, Board of Governors of the Federal Reserve System (U.S.).
    3. Marcelo Rezende & Mary-Frances Styczynski & Cindy M. Vojtech, 2016. "The Effects of Liquidity Regulation on Bank Demand in Monetary Policy Operations," Finance and Economics Discussion Series 2016-090, Board of Governors of the Federal Reserve System (U.S.).
    4. Tsuji, Chikashi, 2020. "Correlation and spillover effects between the US and international banking sectors: New evidence and implications for risk management," International Review of Financial Analysis, Elsevier, vol. 70(C).
    5. Cristina Zeldea, 2020. "Modeling the Connection between Bank Systemic Risk and Balance-Sheet Liquidity Proxies through Random Forest Regressions," Administrative Sciences, MDPI, Open Access Journal, vol. 10(3), pages 1-1, August.
    6. Douglas da Rosa München & Herbert Kimura, 2020. "Regulatory Banking Leverage: what do you know?," Working Papers Series 540, Central Bank of Brazil, Research Department.
    7. Glocker, Christian, 2019. "Do reserve requirements reduce the risk of bank failure?," MPRA Paper 95634, University Library of Munich, Germany.
    8. Jeffrey E. Stambaugh & John Martinez & G. T. Lumpkin & Niyati Kataria, 2017. "How well do EO measures and entrepreneurial behavior match?," International Entrepreneurship and Management Journal, Springer, vol. 13(3), pages 717-737, September.
    9. Daniel Roberts & Asani Sarkar & Or Shachar, 2018. "Bank Liquidity Creation, Systemic Risk, and Basel Liquidity Regulations," Staff Reports 852, Federal Reserve Bank of New York.
    10. 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.
    11. Kok, Christoffer & Darracq Pariès, Matthieu & Hałaj, Grzegorz, 2016. "Bank capital structure and the credit channel of central bank asset purchases," Working Paper Series 1916, European Central Bank.
    12. Sandrine Lecarpentier & Cyril Pouvelle & Olivier de Bandt, 2019. "Determinants of banks' liquidity : a French perspective on market and regulatory ratio interactions," EconomiX Working Papers 2019-18, University of Paris Nanterre, EconomiX.
    13. Jane E. Ihrig & Edward Kim & Ashish Kumbhat & Cindy M. Vojtech & Gretchen C. Weinbach, 2017. "How Have Banks Been Managing the Composition of High-Quality Liquid Assets?," Finance and Economics Discussion Series 2017-092, Board of Governors of the Federal Reserve System (U.S.).
    14. Adi Mordel, 2018. "Prudential Liquidity Regulation in Banking-A Literature Review," Discussion Papers 18-8, Bank of Canada.
    15. Tobias Adrian, 2015. "Discussion of “Systemic Risk and the Solvency-Liquidity Nexus of Banks”," Staff Reports 722, Federal Reserve Bank of New York.

    More about this item

    Keywords

    Liquidity regulation; systemic risk; liquidity coverage ratio;

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • G1 - Financial Economics - - General Financial Markets

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