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During the crisis of 2007-2008, the Federal Reserve did just that. Through a variety of lending programs, the Fed and some other central banks supplied liquidity to firms that were unable to obtain it from the market. In the aftermath of the crisis, however, some questioned whether central banks had lent too freely.
Aug 22, 2023 · The Middle Course: What Fed History Teaches Us About Liquidity Requirements. Bill Nelson. August 22, 2023 Print. If banks were to keep, in cash, all the money deposited with them, business would come to a standstill and a crisis would ensue. If banks were to lend to those who apply for loans all the money on deposit with them, a general panic ...
This can increase the risk of future asset-value impairment, an event that would trigger liquidity risk by causing depositors to run the bank; the empirical suggest that liquidity problems are often triggered by concerns that the bank is insolvent due to poor asset quality (e.g., Gorton, 1988). To improve the bank’s asset portfolio choices and risk management, regulatory monitoring and ...
Although examiners have long supervised banks' liquidity positions, numerical liquidity requirements comparable to risk-based capital requirements have only recently been adopted. Gazi Ishak Kara from the Federal Reserve Board of Governors and S. Mehmet Ozsoy of Ozyegin University develop a model in which relying solely on capital regulation leads banks to reduce their liquidity holdings.
Jul 11, 2024 · The researchers study how a liquidity shock to one bank impacted the liquidity positions of other banks before and during the COVID-19 pandemic. They find that this shock transmission, or “spillover,” was stronger during the COVID-19 period than the pre-pandemic period, on average. They also find that, on average, connections that can ...
Jan 1, 2024 · We construct a liquidity ratio gap i for each bank, defined as the following: (4) Liquidity ratio gap i = Required ratio i − Pre-regulation ratio i, where Required ratio is 100% for banks with assets above $250 billion and 70% for banks with assets between $50 billion and $250 billion, Pre-regulation ratio i is the liquidity ratio in 2012Q4, the last quarter before the introduction of the ...
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1A revised version of this paper has been published in the Journal of Regulation and Risk North Asia, May 2009. 2 Judit Montoriol-Garriga, Federal Reserve Bank of Boston. 600 Atlantic Ave, Boston, MA 02210. Phone: +1 (617) 973-3191. E-mail: judit.montoriol-garriga@bos.frb.org.
