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Liquidity Policies and Systemic Risk

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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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    JEL classification:

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

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