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5 posts on "liquidity coverage ratio"
July 12, 2021

Tailoring Regulations

Regulations are not written in stone. The benefits derived from them, along with the costs of compliance for affected institutions and of enforcement for regulators, are likely to evolve. When this happens, regulators may seek to modify the regulations to better suit the specific risk profiles of regulated entities. In this post, we consider the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA) passed by Congress in 2018, which eased banking regulations for smaller institutions. We focus on one regulation—the Liquidity Coverage Ratio (LCR)—and assess how its relaxation affected newly exempt banks’ assets and liabilities, and the resilience of the banking system.

July 15, 2019

Large Bank Cash Balances and Liquidity Regulations

Jeffrey Levine and Asani Sarkar discuss the recent evolution of large bank cash balances, the effect of liquidity regulations on these balances, and how banks might react to the Federal Reserve’s changes in the supply of reserves.

Posted at 7:00 am in Banks, Liquidity, Regulation | Permalink | Comments (1)
October 15, 2018

Did Banks Subject to LCR Reduce Liquidity Creation?

Banks traditionally provide loans that are funded mostly by deposits and thereby create liquidity, which benefits the economy. However, since the loans are typically long-term and illiquid, whereas the deposits are short-term and liquid, this creation of liquidity entails risk for the bank because of the possibility that depositors may “run” (that is, withdraw their deposits on short notice). To mitigate this risk, regulators implemented the liquidity coverage ratio (LCR) following the financial crisis of 2007-08, mandating banks to hold a buffer of liquid assets. A side effect of the regulation, however, is a reduction in liquidity creation by banks subject to LCR, as we find in our recent paper.

April 17, 2014

Liquidity Policies and Systemic Risk

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.

April 14, 2014

Liquidity Risk, Liquidity Management, and Liquidity Policies

During the 2007-09 financial crisis, banks experienced widespread funding shortages, with shortfalls even hindering adequately capitalized banks.

Posted at 7:00 am in Financial Institutions, Liquidity | Permalink
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