Bank Liquidity, the Maturity Ladder, and Regulation
57 Pages Posted: 6 Aug 2012
Date Written: July 12, 2012
We investigate 62 Dutch banks’ liquidity behaviour between January 2004 and March 2010, when these banks were subject to a liquidity regulation that is very similar to Basel III’s Liquidity Coverage Ratio (LCR). We find that most banks hold more liquid assets against their stock of liquid liabilities, such as demand deposits, than strictly required under the regulation. More solvent banks hold fewer liquid assets against their stock of liquid liabilities, suggesting an interaction between capital and liquidity buffers. However, this interaction turns out to be weaker during a crisis. Although not required, some banks consider cash flows scheduled beyond one month ahead when setting liquidity asset holdings, but they seldom look further ahead than one year.
Keywords: Banks, Liquidity, Regulation
JEL Classification: G21, G28, G32
Suggested Citation: Suggested Citation