Liquidity policies and systemic risk

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractThe growth of wholesale-funded credit intermediation has motivated liquidity regulations. We analyze a dynamic stochastic general equilibrium model in which liquidity and capital regulations interact with the supply of risk-free assets. In the model, the endogenously time-varying tightness of liquidity and capital constraints generates intermediaries' leverage cycle, influencing the pricing of risk and the level of risk in the economy. Our analysis focuses on liquidity policies' implications for household welfare. Within the context of our model, liquidity requirements are preferable to capital requirements, as tightening liquidity requirements lowers the likelihood of systemic distress without impairing consumption growth. In addition, we find that intermediate ranges of risk-free asset supply achieve higher welfare.

Predicting LCR with GDP, NPLs and ROE

“…Kritičari LCR-a raspravljaju o negativnom materijalnom učinku na gospodarski rast i putting liquidity ratios into regulation is of more relevance for large banks than for small banks as large banks underestimate liquidity risk, due to their too-big-to-fail (TBTF) position or by usage of off-balance sheet instruments in managing liquidity. Adrian & Boyarchenko (2018) assume that liquidity requirements could be more useful than capital requirements. The reasoning is that consumption growth will not be impaired as tightening liquidity requirements lowers the likelihood of systemic distress and relation to consumption.…”

Managing Risk Taking With Interest Rate Policy and Macroprudential Regulations

“…Angeloni and Faia (2013) study a model with bank runs and nominal rigidities and show that maximizing social welfare requires countercyclical capital regulation and a monetary policy rule that responds to financial conditions. Adrian and Boyarchenko (2018) study the interaction of capital and liquidity regulation in a dynamic general equilibrium model. Collard et al (2017) show that optimal capital regulation is procyclical and covaries negatively with monetary policy in a model in which the latter has no impact on bank risk taking.…”

Can market risk explain the systemic risk? Evidence from the US banking industry

“…The authors find that interest rate risk is positively associated with systemic risk, indicating that banks that are more exposed to interest rate risk are also more likely to contribute to systemic risk. Another study by Adrian and Boyarchenko (2018) investigates the relationship between liquidity risk and systemic risk. The authors indicate that banks that are more vulnerable to liquidity shocks are also more likely to contribute to systemic risk.…”