Featured Product

    ECB Publishes Paper Examining Costs and Benefits of Liquidity Rules

    July 13, 2018

    ECB published a working paper that investigates the costs and benefits of liquidity regulation. The authors find that liquidity tools are beneficial but cannot completely remove the need for Lender of Last Resort (LOLR) interventions by the central bank.

    The paper investigated the extent to which the two main liquidity ratios (Liquidity Coverage Ratio, or LCR, and the Net Stable Funding Ratio, or NSFR) might have been effective in reducing liquidity take-up by European banks during the post-Lehman crisis as well as the European Sovereign Debt crisis. It was found that full compliance with the current LCR and NSFR rules would have reduced banks’ reliance on publicly provided liquidity during the global financial crisis, without removing such assistance altogether. Nevertheless, the evidence also suggested that liquidity regulations (at least as currently specified) would not have prevented the need for large public liquidity assistance for European banks. The empirical results, therefore, pointed to caution against expecting the end of LOLR interventions due to the application of the current liquidity policy tools. 

    The authors estimated the cost for banks of complying with the LCR and NSFR and found that these costs turn out to be non-trivial but small, especially when compared with the costs of capital requirements. When the introduction of the LCR and NSFR was simulated in two structural macro-financial models, it was found that the regulations would lead to relatively modest declines in lending and real activity. The analysis, therefore, suggested that while the LCR and NSFR do not have financial stability benefits on a par with bank capital requirements, they are still useful due to their relatively low cost. 

     

    Related Link: Working Paper (PDF)

    Keywords: Europe, EU, Banking, Liquidity Risk, LCR, NSFR, Basel III, ECB

     

    Featured Experts
    Related Articles
    News

    ESMA Releases Enforcement Priorities for 2019 Annual Financial Reports

    ESMA published a statement on the priorities that European enforcers will consider when examining the 2019 annual financial reports of listed companies.

    October 22, 2019 WebPage Regulatory News
    News

    EC Consults on Alternative Standardized Approach for Market Risk

    EC is consulting on a delegated regulation amending the Capital Requirements Regulation (CRR) with regard to the alternative standardized approach for market risk.

    October 21, 2019 WebPage Regulatory News
    News

    CPMI Report Examines Impact of Global Stablecoins

    This report by the G7 Working Group on Stablecoins finds that stablecoins, regardless of size, have implications ranging from anti-money laundering efforts across jurisdictions to operational resilience (including for cyber security), consumer or investor and data protection, and tax compliance.

    October 18, 2019 WebPage Regulatory News
    News

    BoE Announces Date for Publication of Stress Test Results for Banks

    BoE announced its plans to publish results of the full UK annual stress tests on December 10, 2019.

    October 18, 2019 WebPage Regulatory News
    News

    US Agencies Request Comments on Use and Impact of CAMELS Ratings

    US Agencies (FDIC and FED) are seeking information and comments from interested parties regarding the consistency of ratings assigned by the agencies under the Uniform Financial Institutions Rating System (UFIRS).

    October 18, 2019 WebPage Regulatory News
    News

    PRA Consults on Approach to Supervising Liquidity and Funding Risks

    In consultation paper (CP27/19), PRA published a proposal (CP27/19) to update the supervisory statement SS24/15 on the PRA approach to supervising liquidity and funding risk.

    October 17, 2019 WebPage Regulatory News
    News

    US Agencies Consult on Policy Statement on Allowance for Credit Losses

    US Agencies (FDIC, FED, NCUA, and OCC) are consulting on the policy statement on allowances for credit losses and on the guidance on credit risk review systems.

    October 17, 2019 WebPage Regulatory News
    News

    FSI Paper Examines Use of Suptech Initiatives by Financial Authorities

    The Financial Stability Institute (FSI) of BIS published a paper that examines the suptech developments by analyzing suptech initiatives of 39 financial authorities globally.

    October 17, 2019 WebPage Regulatory News
    News

    US Agencies Publish Notice to Extend Form FFIEC 102 for Three Years

    US Agencies (FDIC, FED, and OCC) published a joint notice regarding extension of the market risk regulatory report for institutions subject to the market risk capital rule (FFIEC 102).

    October 17, 2019 WebPage Regulatory News
    News

    ECB Publishes Recommendations on Euro Risk-Free Rates Transition

    ECB published a report, by private sector working group on euro risk-free rates, which contains recommendations, from a risk management perspective, on the transition to new risk-free rates.

    October 17, 2019 WebPage Regulatory News
    RESULTS 1 - 10 OF 4006