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.
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This paper provides evidence of a link between specialisation patterns − in intermediate inputs or final goods − and business cycle correlations: countries with a similar intermediate-good content of exports tend to have more correlated GDP fluctuations and external balances. We produce a model that replicates these facts. A productivity shock in a large country ("the U.S.") has a smaller effect on the terms of trade of countries that share its specialisation, while being shared fully with countries specialised in the other type of good through a terms-of-trade effect. In the presence of complete asset markets, the trade balance reflects the flow of insurance payments. All countries who benefit little from the shock in the large country will have correlated, negative net exports. The trade balances of all other countries will jointly move in the opposite direction.
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