Creation and Regulation of Bank Liquidity

59 Pages Posted: 6 Nov 2018

See all articles by Christa H. S. Bouwman

Christa H. S. Bouwman

Texas A&M University; Wharton Financial Institutions Center

Date Written: October 7, 2018


Liquidity creation is a core function of banks and an important economic service to the economy. This chapter carefully examines the theoretical and empirical literature on bank liquidity creation. The focus is on the economics of bank liquidity creation, both in the traditional relationship banking context and in the shadow banking context. Related prudential regulation issues – pertaining mainly to capital requirements and liquidity requirements – are also discussed. A historical overview is provided, starting in the early 1800s and ending with Basel III and the Dodd-Frank Act. Open research questions are identified.

Keywords: Banking, Relationship Banking, Shadow Banking, Capital, Capital Requirements, Liquidity Creation, Liquidity, Liquidity Requirements, Regulation

JEL Classification: G01, G21, G28, G32

Suggested Citation

Bouwman, Christa H. S., Creation and Regulation of Bank Liquidity (October 7, 2018). Available at SSRN: or

Christa H. S. Bouwman (Contact Author)

Texas A&M University ( email )

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


Wharton Financial Institutions Center

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

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