Global Liquidity Regulation - Why Did it Take so Long?

Bonner, Clemens; Hilbers, Paul

doi:10.2139/ssrn.2553082

Cited by 16 publications

(23 citation statements)

References 34 publications

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“…Clearly, a necessary condition for the validity of using the required capital ratio as a proxy for the actual capital ratio is that the regulatory capital requirements must In terms of variation of ICG over time, we identied in our sample 500 changes 10 We also nd a signicant positive correlation between banks' actual capital ratios and their required ones. Those results are available upon request.…”

Section: Measure Of Banks' Capitalmentioning

confidence: 80%

Capital and Liquidity Interaction in Banking

et al. 2019

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We study how banks' capital level affects the extent to which they engage in liquidity transformation. We first construct a simple model to develop testable hypotheses on this link. Then we test our predictions and establish the causality using a confidential Bank of England dataset that includes arguably exogenous changes in banks' capital requirement add-ons. We find that banks engage in less liquidity transformation when their capital increases, which suggests that capital and liquidity requirements are at least to some extent substitutes. We also find that this substitution is mostly driven by small banks. These results have interesting implications for the optimal joint calibration of capital and liquidity requirements and for the proportionality of prudential regulations.

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Section: Measure Of Banks' Capitalmentioning

confidence: 80%

Capital and Liquidity Interaction in Banking

et al. 2019

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“…The LBR was unique to the Netherlands. Bank regulators based in other Eurozone countries did not consider this type of rule until the Global Financial Crisis of 2007-2009, when following international agreement, the Liquidity Coverage Ratio was implemented (Bonner and Hilbers 2015). As a consequence, banks operating in Eurozone countries outside the Netherlands serve as a suitable sample from which a control group can be constructed.…”

Section: Identificationmentioning

confidence: 99%

Liquidity Regulation and Bank Lending

2020

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Bank liquidity shortages during the global financial crisis of 2007-2009 led to the introduction of liquidity regulations, the impact of which has attracted the attention of academics and policymakers. In this paper, we investigate the impact of liquidity regulation on bank lending. As a setting, we use the Netherlands, where a Liquidity Balance Rule (LBR) was introduced in 2003. The LBR was imposed on Dutch banks only and did not apply to other banks operating elsewhere within the Eurozone. Using this differential regulatory treatment to overcome identification concerns, we investigate whether there is a causal link from liquidity regulation to the lending activities of banks. Using a difference-in-differences approach, we find that stricter liquidity requirements following the implementation of the LBR did not reduce lending. However, the LBR did lead Dutch banks to modify the structure of loan portfolios by increasing corporate lending and reducing mortgage lending. During this period Dutch banks experienced a significant increase in deposits and issued more equity. Overall, the findings of this study have relevance for policymakers tasked with monitoring the impact of post-crisis liquidity regulations on bank behavior. AbstractBank liquidity shortages during the global financial crisis of 2007-2009 led to the introduction of liquidity regulations, the impact of which has attracted the attention of academics and policymakers. In this paper, we investigate the impact of liquidity regulation on bank lending. As a setting, we use the Netherlands, where a Liquidity Balance Rule (LBR) was introduced in 2003. The LBR was imposed on Dutch banks only and did not apply to other banks operating elsewhere within the Eurozone. Using this differential regulatory treatment to overcome identification concerns, we investigate whether there is a causal link from liquidity regulation to the lending activities of banks. Using a difference-in-differences approach, we find that stricter liquidity requirements following the implementation of the LBR did not reduce lending. However, the LBR did lead Dutch banks to modify the structure of loan portfolios by increasing corporate lending and reducing mortgage lending. During this period Dutch banks experienced a significant increase in deposits and issued more equity. Overall, the findings of this study have relevance for policymakers tasked with monitoring the impact of post-crisis liquidity regulations on bank behavior.

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“…The overarching argument of these different positions on state agency thus is that, as markets expanded and liberalized, policy makers found reasons to come to terms with and support the (re-)emergence of global finance. We therefore ended up in a world in which the regulations defining banking and money markets in the New Deal/post-war era, like capital controls, credit controls (Reinicke 1995), reserve requirements (Bonner and Hilbers 2015), and restrictive membership rules for different market segments, had disappeared. I do not deny the importance and validity of this argument, but suggest that it incompletely captures the processes, whereby money markets consolidated as critical infrastructures of financialized economies.…”

Section: Money Market Expansion During the Liberalization-phase Of Fimentioning

confidence: 99%

Formal institution building in financialized capitalism: the case of repo markets

Wansleben

2020

Theor Soc

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Money markets are at the heart of financialized capitalism, as those markets that provide the funding liquidity needed for credit creation and leveraged trading. How have these markets evolved, grown, and become critical for larger financial flows? To answer this question, I distinguish an early period of financial globalization marked by regulatory arbitrage, offshoring, deregulation, and informal trading practices from a period of regime-consolidation marked by formal institutionalization. Concentrating on repo markets as the key funding sources for market-based banking, I demonstrate that new institutional arrangements for these markets were initiated by private sector associations, but supported and authorized by public authorities. Bond trader groups codified new contractual arrangements and these were validated via reforms of bankruptcy codes and changes in central banks' policy frameworks in the United States and European Union. Through these modifications and re-articulations in institutional conditions, transactions and large exposures on money markets became routine affairs-for shadow banking actors like money market funds as well as for commercial banks. The article concludes by discussing the continuity of regime-consolidation efforts after the transatlantic financial crisis and hypothesizes that they reveal "neopatrimonial" features.

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Global Liquidity Regulation - Why Did it Take so Long?

Cited by 16 publications

References 34 publications

Capital and Liquidity Interaction in Banking

Capital and Liquidity Interaction in Banking

Liquidity Regulation and Bank Lending

Formal institution building in financialized capitalism: the case of repo markets

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