Banks’ liquidity buffers and the role of liquidity regulation

Clemens Bonner, Iman van Lelyveld, Robert Zymek

Research output: Working paperDiscussion paper

Abstract

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. Wehighlight 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.
Original languageEnglish
PublisherDNB Working Paper Series
Pages1-27
Number of pages27
Publication statusPublished - 17 Sep 2013

Publication series

NameDNB Working Papers
No.393

Keywords

  • liquidity
  • regulation
  • disclosure
  • business models

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