The impact of bank regulatory capital on liquidity creation: A critical issue for euro area policy makers

• Autor(a) principal: Freitas, Hugo André Ferreira de
• Data de Publicação: 2014
• Tipo de documento: Dissertação
• Idioma: eng
• Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
• Texto Completo: http://hdl.handle.net/10071/10241
• topic: Intermediação financeira; Regulação bancária; Requisitos de fundos próprios; Criação de liquidez; Financial intermediation; Bank regulation; Bank regulatory capital; Liquidity creation

This study examines the impact of bank regulatory capital on liquidity creation for the economy based on a sample of Euro area banks over the period of 2006-2012. In order to assess this relationship, three different liquidity creation measures are considered: the Berger and Bowman (2009) measure, the inverse of the Net Stable Funding Ratio and the gross loans item. The results of this investigation show that higher regulatory capital negatively impacts liquidity creation. This negative relationship enhances the need for Euro area policy makers to be concerned about the consequences to the economy resulting from more demanding regulatory requirements introduced by the Basel III/CRD IV. However, no evidence is found that the relationship between regulatory capital and liquidity creation differs neither according to bank size nor during a crisis period. Nevertheless, the results of this study suggest that, for the benefit of economic growth, regulatory authorities can at some extent relax on capital and liquidity requirements to small banks as long as these banks, at the aggregate level and on a local basis, do not represent any systemic threat.