Bank liquidity and capital shocks in unconventional times

This paper examines bank liquidity management following capital shocks under capital and liquidity regulation in a period of unconventional monetary policies. Studying European banks between 2010 and 2018, we find that bank liquidity is generally not affected by a negative capital shock. Capital shocks are nevertheless transmitted into liquidity positions through balance sheet adjustments. Addressing bank-level balance sheet policies, we find that the banks de-risk assets by replacing corporate loans with financial securities, especially if the shock takes place during periods of heightened central bank interventions. Moreover, asset-side-dominant risk-reducing behavior goes against regulatory intent and indicates that regulatory arbitrage considerations affect banks’ responses to shocks. Finally, we document heterogeneous responses by banks depending on their size, type, and country. These findings imply that compliance with regulation may lead to partial shortages in corporate lending, with banks prioritizing investment in government securities in event of a capital shock.

Croci, EttoreCatholic University, Italy (författare)
Elliot, ViktorGothenburg University,Göteborgs universitet,Företagsekonomiska institutionen,Department of Business Administration(Swepub:gu)xluvik (författare)
Willesson, MagnusLinnéuniversitetet,Institutionen för nationalekonomi och statistik (NS),Sustainable Co-creation - through interdisciplinary solutions(Swepub:lnu)mwiehv (författare)
University of Bologna, ItalyCatholic University, Italy (creator_code:org_t)

Ingår i:European Journal of Finance: Taylor & Francis Group29:14, s. 1678-17031351-847X1466-4364

Av författaren/redakt...: Baros, Aleksandr ...; Croci, Ettore; Elliot, Viktor; Willesson, Magnu ...

Om ämnet

SAMHÄLLSVETENSKAP: SAMHÄLLSVETENSKA ...; och Ekonomi och näri ...; och Företagsekonomi

SAMHÄLLSVETENSKAP: SAMHÄLLSVETENSKA ...; och Ekonomi och näri ...; och Nationalekonomi

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