Large and mid-size banks subject to the US liquidity coverage ratio have been creating less liquidity in the last few years, raising questions of whether the post-crisis standard is “socially harmful,” US Federal Reserve researchers said.
The drop in liquidity creation occurred in commercial and residential real-estate loans made by banks with more than $50 billion in assets, and in their transactions in short-term, volatile overnight debt and trading liabilities.
“Our results highlight the trade-off between lower liquidity creation and lower run risk from reduced liquidity mismatch of the largest banks,” Fed researchers Daniel Roberts, Asani Sarkar and Or Shachar said in a blog this week about their study. “Whether this reduction in liquidity creation is socially harmful is unclear.”
Banks subject to liquidity coverage ratio create less liquidity, Fed researchers find
18 October 2018 7:15am