EBA欧洲银行-09-Bonner-Lelyveld-Zymek-Slides_55页_784kb

Summary of "Banks' Liquidity Buffers and the Role of Liquidity Regulation"

Purpose

The study aims to:

• Assess the determinants of banks' liquidity holdings
• Highlight whether liquidity regulation substitutes or complements banks' incentives to hold liquid assets
• Focus on factors such as Disclosure, Concentration, Business Model, DGS (Deposit Guarantee Scheme), and Size

Motivation

• International efforts to establish or reform liquidity risk frameworks
• Introduction of Basel 3 regulations, specifically the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR)
• Little is known about the factors influencing banks' liquidity holdings
• This is the first global study on the role of liquidity regulation in shaping liquidity buffers

Liquidity Risk

• Liquidity risk refers to the risk that a financial agent will be unable to meet obligations at a reasonable cost as they come due
• Banks manage liquidity risk by maintaining a buffer of market-liquid assets
• The optimal liquidity buffer involves a trade-off between self-insurance against liquidity risk and returns from illiquid, higher-yielding assets
• Factors that lower liquidity risk are expected to reduce liquidity buffers, and vice versa

Data

• Coverage: 7,000 banks across 24 OECD countries from 1998 to 2007
• Key variables:
  • Bank-specific: Profit, Size, Deposits, Capital
  • Contextual: Concentration, Disclosure, DGS, Business Model
  • Macro: Interest rates, GDP growth, inflation
  • FinDep: Financial openness, stock market capitalization
• Controls: Year and country dummies

Empirical Model

$$
\Delta \text{Liquidity}{bct} = \beta_0 + \beta_1 \text{Bank}{bct} + \beta_2 \text{Context}{ct} + \beta_3 \text{Macro}{ct} + \beta_4 \text{FinDep}{ct} + \varepsilon{bt}
$$

• The model examines the impact of various factors on the change in liquidity holdings across different regulatory regimes

Liquidity Holdings and Size

• Size has a non-linear effect on liquidity holdings
• Larger banks tend to hold lower liquidity buffers, suggesting a bias towards large institutions
• In regulatory regimes, the effect of size is reinforced, while in no regulation regimes, it is amplified

Liquidity Holdings and Contextual Factors

• Disclosure has a positive effect on liquidity holdings, indicating that disclosure requirements complement liquidity regulation
• Concentration has a negative effect, meaning that more concentrated banking sectors tend to hold less liquidity
• DGS has a neutral to slightly negative effect, suggesting that deposit guarantee schemes do not significantly influence liquidity holdings

Main Findings

1. Determinants of banks' liquidity holdings:

   • Bank-specific: Deposits and profit are positive factors, while size and capital are negative factors
   • Business model: Savings banks have lower liquidity holdings, investment banks have higher, and corporate and mortgage banks have lower
   • Contextual: Concentration is negative, disclosure is positive, and DGS is neutral

2. Effects of liquidity regulation:

   • Substitutes almost all bank- and country-specific determinants
   • Complements disclosure requirements, increasing their importance
   • Reinforces the non-linear effect of size, indicating a bias towards large institutions

Sensitivity Analysis

• The results are robust to:
  • Different liquidity regulation variables
  • Lagged variables
  • Fixed and random effects models
• Further analysis is needed on different liquidity variables

Policy Implication

• Harmonizing liquidity regulation requires harmonizing disclosure requirements as well
• The non-linear effect of size suggests that liquidity regulation may favor large institutions over smaller ones, potentially creating asymmetric risks

Conclusion

• The determinants of banks' liquidity buffers are a combination of bank- and country-specific factors
• Liquidity regulation substitutes most of these factors, indicating that it replaces the need for self-insurance through internal liquidity management
• Liquidity regulation also makes disclosure more important, acting as a complement to disclosure requirements
• The non-linear size effect suggests that regulatory frameworks may have asymmetric impacts on different bank sizes