Bank Liquidity Creation Following Regulatory Interventions and Capital Support

39 Pages Posted: 11 Aug 2011 Last revised: 20 Jan 2016

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

Deutsche Bundesbank

Klaus Schaeck

University of Bristol

Date Written: January 20, 2016

Abstract

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.

Keywords: liquidity creation, bank distress, regulatory interventions, capital support, bailouts

JEL Classification: G21, G28

Suggested Citation

Berger, Allen N. and Bouwman, Christa H. S. and Kick, Thomas K. and Schaeck, Klaus, Bank Liquidity Creation Following Regulatory Interventions and Capital Support (January 20, 2016). Journal of Financial Intermediation, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1908102 or http://dx.doi.org/10.2139/ssrn.1908102

Allen N. Berger

University of South Carolina - Darla Moore School of Business ( email )

1705 College St
Francis M. Hipp Building
Columbia, SC 29208
United States
803-576-8440 (Phone)
803-777-6876 (Fax)

Wharton Financial Institutions Center

Philadelphia, PA 19104-6367
United States

European Banking Center

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Christa H. S. Bouwman

Texas A&M University ( email )

360H Wehner
College Station, TX 77843-4218
United States
979-845-3514 (Phone)
979-845-3514 (Fax)

HOME PAGE: http://people.tamu.edu/~cbouwman/

Wharton Financial Institutions Center

2306 Steinberg Hall-Dietrich Hall
3620 Locust Walk
Philadelphia, PA 19104
United States

Thomas K. Kick

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
D-60431 Frankfurt/Main
Germany

Klaus Schaeck (Contact Author)

University of Bristol ( email )

University of Bristol,
Senate House, Tyndall Avenue
Bristol, BS8 ITH
United Kingdom

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