Navigating the Low Interest Rate Landscape: Assessing Liquidity Positions of EU Banks under the LCR Constraint
Navigating the Low Interest Rate Landscape: Assessing Liquidity Positions of EU Banks under the LCR Constraint
Author(s): Petr Hanzlík, Petr TeplýSubject(s): National Economy, Business Economy / Management, Micro-Economics, Financial Markets, Public Finances, Socio-Economic Research
Published by: SAV - Slovenská akadémia vied - Ekonomický ústav SAV a Prognostický ústav SAV
Keywords: banks; interest rates; liquidity risk; Liquidity Coverage Ratio; regulation
Summary/Abstract: This paper explores the impact of the Liquidity Coverage Ratio (LCR) as a binding constraint on banks. Using a panel dataset encompassing 707 banks located in EU countries over the years 2012 to 2018, we analyze the phased introduction of the LCR. Our research reveals a positive effect of the LCR on liquidity buffers and a negative impact on the loan-to-deposit ratio, indicating strengthened liquidity positions. Estimations across five bank types demonstrate a significant LCR impact on all categories. The study investigates the adverse effects of low or negative interest rates, particularly affecting cooperative and savings banks. We recommend that policymakers maintain a vigilant approach to liquidity regulations, ensuring their adaptability to diverse bank types and considering measures to alleviate the negative impact of prolonged low or negative interest rate environments on specific bank categories.
Journal: Ekonomický časopis
- Issue Year: 72/2024
- Issue No: 05-06
- Page Range: 211-234
- Page Count: 24
- Language: English
