Bank liquidity, the maturity ladder, and regulation

•We investigate liquidity behaviour of banks subject to Basel III-type regulation.•We relate banks’ liquidity to the full maturity ladder of future cash flows.•Most banks hold more liquid assets than required by regulation.•Banks consider cash flows beyond 1month when setting liquid asset holdings.•...

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Bibliographic Details
Published in:Journal of banking & finance Vol. 37; no. 10; pp. 3930 - 3950
Main Authors: de Haan, Leo, van den End, Jan Willem
Format: Journal Article
Language:English
Published: Amsterdam Elsevier B.V 01.10.2013
Elsevier Sequoia S.A
Subjects:
Asset management
Assets
Bank liquidity
Banking
Banks
Cash flow
Financial services
Liquid assets
Liquidity
Maturity
Regulation
Regulation of financial institutions
Studies
Western Europe
Netherlands
Banks
Liquidity
Regulation
G28
G21
G32
ISSN:0378-4266, 1872-6372
Online Access:Get full text
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Summary:•We investigate liquidity behaviour of banks subject to Basel III-type regulation.•We relate banks’ liquidity to the full maturity ladder of future cash flows.•Most banks hold more liquid assets than required by regulation.•Banks consider cash flows beyond 1month when setting liquid asset holdings.•More solvent banks hold fewer liquid assets against liquid liabilities. We investigate the liquidity management of 62 Dutch banks between January 2004 and March 2010, when these banks were subject to a liquidity regulation that is very similar to Basel III’s Liquidity Coverage Ratio (LCR). We find that most banks hold more liquid assets against their stock of liquid liabilities, such as demand deposits, than strictly required under the regulation. More solvent banks hold fewer liquid assets against their stock of liquid liabilities, suggesting an interaction between capital and liquidity buffers. However, this interaction turns out to be weaker during a crisis. Although not required, some banks consider cash flows scheduled beyond 1month ahead when setting liquidity asset holdings, but they seldom look further ahead than 1year.
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ISSN:0378-4266
1872-6372
DOI:10.1016/j.jbankfin.2013.07.008