The Impact of the LCR on the Interbank Money Market

38 Pages Posted: 4 Jan 2013

See all articles by Clemens Bonner

Clemens Bonner

De Nederlandsche Bank; Tilburg University

Sylvester C. W. Eijffinger

Tilburg University (CentER) - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: December 20, 2012

Abstract

This paper analyzes the impact of a liquidity requirement similar to the Basel 3 Liquidity Coverage Ratio (LCR) on the unsecured interbank money market and therefore on the implementation of monetary policy. Combining two unique datasets of Dutch banks from 2005 to 2011, we show that banks which are just above/below their short-term regulatory liquidity requirement pay and charge higher interest rates for unsecured interbank loans. The effect is larger for maturities longer than the liquidity requirement’s 30 day horizon. Being close to the minimum liquidity requirement induces banks to increase borrowing volumes in general while it only decreases lending volumes for maturities longer than 30 days. These results also hold when controlling for an institution’s riskiness, the solvency of its counterparts, relationship-lending and period-specific effects.

Keywords: monetary policy, liquidity, interbank market, Basel 3

JEL Classification: G18, G21, E42

Suggested Citation

Bonner, Clemens and Eijffinger, Sylvester C. W., The Impact of the LCR on the Interbank Money Market (December 20, 2012). De Nederlandsche Bank Working Paper No. 364. Available at SSRN: https://ssrn.com/abstract=2195904 or http://dx.doi.org/10.2139/ssrn.2195904

Clemens Bonner (Contact Author)

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

Tilburg University ( email )

P.O. Box 90153
Tilburg, DC 5000 LE
Netherlands

Sylvester C. W. Eijffinger

Tilburg University (CentER) - Department of Economics ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 2411 (Phone)
+31 13 466 3042 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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