Banks’ Liquidity Buffers and the Role of Liquidity Regulation

29 Pages Posted: 18 Sep 2013

See all articles by Clemens Bonner

Clemens Bonner

De Nederlandsche Bank; Tilburg University

Iman van Lelyveld

De Nederlandsche Bank; VU University Amsterdam

Robert Zymek

University of Edinburgh - School of Economics

Date Written: September 17, 2013

Abstract

We assess the determinants of banks’ liquidity holdings using balance sheet data for nearly 7000 banks from 30 OECD countries over a ten-year period. We highlight the role of several bank-specific, institutional and policy variables in shaping banks’ liquidity risk management. Our main question is whether the presence of liquidity regulation substitutes or complements banks’ incentives to hold liquid assets. Our results reveal that in the absence of liquidity regulation, the determinants of banks’ liquidity buffers are a combination of bank-specific (business model, profitability, deposit holdings, size) and country-specific (disclosure requirements, concentration of the banking sector) variables. While most incentives are substituted by liquidity regulation, a bank’s disclosure requirement and size remain significant. A key takeaway from our analysis is that the complementary nature of disclosure and liquidity requirements provides a strong rationale for considering them jointly in the design of regulation.

Keywords: Liquidity, Regulation, Disclosure, Business Models

JEL Classification: G20, G21, G28

Suggested Citation

Bonner, Clemens and van Lelyveld, Iman and Zymek, Robert, Banks’ Liquidity Buffers and the Role of Liquidity Regulation (September 17, 2013). De Nederlandsche Bank Working Paper No. 393, Available at SSRN: https://ssrn.com/abstract=2327474 or http://dx.doi.org/10.2139/ssrn.2327474

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 Noord-Brabant 5000 LE
Netherlands

Iman Van Lelyveld

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

VU University Amsterdam ( email )

Netherlands

Robert Zymek

University of Edinburgh - School of Economics ( email )

31 Buccleuch Place
Edinburgh, EH8 9JT
United Kingdom

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