In:
Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System, Vol. 2019, No. 041 ( 2019-5)
Abstract:
We investigate how liquidity regulations affect banks by examining a dormant monetary policy tool that functions as a liquidity regulation. Our identification strategy uses a regression kink design that relies on the variation in a marginal high-quality liquid asset (HQLA) requirement around an exogenous threshold. We show that mandated increases in HQLA cause banks to reduce credit supply. Liquidity requirements also depress banks & #x27; profitability, though some of the regulatory costs are passed on to liability holders. We document a prudential benefit of liquidity requirements by showing that banks subject to a higher requirement before the financial crisis had lower odds of failure.
Type of Medium:
Online Resource
ISSN:
1936-2854
DOI:
10.17016/FEDS.2019.041
Language:
Unknown
Publisher:
Board of Governors of the Federal Reserve System
Publication Date:
2019
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