Bank Liquidity Creation Following Regulatory Interventions and Capital Support
Allen N. Berger
University of South Carolina - Darla Moore School of Business; Wharton Financial Institutions Center; European Banking Center
Christa H. S. Bouwman
Texas A&M University; Wharton Financial Institutions Center
Thomas K. Kick
January 20, 2016
Journal of Financial Intermediation, Forthcoming
We study the effects of regulatory interventions and capital support (bailouts) on banks’ liquidity creation. We rely on instrumental variables to deal with possible endogeneity concerns. Our key findings, which are based on a unique supervisory German dataset, are that regulatory interventions robustly trigger decreases in liquidity creation, while capital support does not affect liquidity creation. Additional results include the effects of these actions on different components of liquidity creation, lending, and risk taking. Our findings provide new and important insights into the debates about the design of regulatory interventions and bailouts.
Number of Pages in PDF File: 39
Keywords: liquidity creation, bank distress, regulatory interventions, capital support, bailouts
JEL Classification: G21, G28
Date posted: August 11, 2011 ; Last revised: January 20, 2016
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