Interactions of Capital and Liquidity Requirements: A Review of the Literature
28 Pages Posted: 19 Apr 2021
Date Written: April 16, 2021
One prominent feature of the regulatory framework put in place after the global financial crisis of 2008 is its reliance on multiple regulatory metrics, which has prompted new research on the interactions between them. This paper reviews the growing literature on the interactions between capital and liquidity requirements – the two primary requirements of the Basel III framework – with the focus on what the literature conveys on the extent to which capital and liquidity requirements are substitutes or complements. The paper also identifies gaps for further research.
Keywords: Capital requirements, liquidity requirements, substitutability and complementarity
JEL Classification: G21, G28
Suggested Citation: Suggested Citation