The impact of liquidity regulation on bank intermediation

Clemens Bonner*, Sylvester C. W. Eijffinger

*Corresponding author for this work

Research output: Contribution to journalArticleScientificpeer-review

9 Citations (Scopus)

Abstract

We analyze the impact of a requirement similar to the Basel III Liquidity Coverage Ratio on the bank intermediation applying Regression Discontinuity Designs. Using a unique dataset on Dutch banks, we show that a liquidity requirement causes long-term borrowing and lending rates as well as demand for long-term interbank loans to increase. Lower levels of aggregate liquidity increase the estimated effects. Short-term borrowing and lending rates only rise during periods of lower market-wide liquidity. Further, banks do not seem able to pass on the increased funding costs in the interbank market to their private sector clients. Rather, a liquidity requirement seems to decrease banks' interest margins.

Original languageEnglish
Pages (from-to)1945-1979
JournalReview of Finance
Volume20
Issue number5
DOIs
Publication statusPublished - Aug 2016

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