Staff Reports
Bank Liquidity Creation, Systemic Risk, and Basel Liquidity Regulations
Previous title: “Bank Liquidity Provision and Basel Liquidity Regulations”
Number 852
June 2018 Revised August 2019

JEL classification: G01, G21, G28

Authors: Daniel Roberts, Asani Sarkar, and Or Shachar

We find that banks subject to the Liquidity Coverage Ratio (LCR banks) create less liquidity per dollar of assets in the post-LCR period than non-LCR banks by, in part, lending less. However, we also find that LCR banks are more resilient as they contribute less to fire-sale risk, relative to non-LCR banks. We estimate the net after-tax benefits from reduced lending and fire-sale risk to be about 1.4 percent of assets in 2013:Q2-2014 for large banks. Our findings, which we show are unlikely to result from capital regulations, highlight the trade-off between lower liquidity creation and greater resilience from liquidity regulations.

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AUTHOR DISCLOSURE STATEMENT(S)
Daniel Roberts
The author declares that he has no relevant or material financial interests that relate to the research described in this paper.

Asani Sarkar
The author declares that he has no relevant or material financial interests that relate to the research described in this paper.

Or Shachar
The author declares that she has no relevant or material financial interests that relate to the research described in this paper.
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