Creation and Regulation of Bank Liquidity
59 Pages Posted: 6 Nov 2018
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: Suggested Citation