Interaction of Capital and Liquidity Regulation in the Banking Sector Cover Image

Interakce kapitálové a likviditní regulace v bankovním sektoru
Interaction of Capital and Liquidity Regulation in the Banking Sector

Author(s): Lukáš Pfeifer, Libor Holub, Zdeněk Pikhart, Martin Hodula
Subject(s): Social Sciences, Economy
Published by: Vysoká škola ekonomická v Praze
Keywords: capital and liquidity regulation; interaction; banking sector; VAR

Summary/Abstract: Basel III responded to the financial crisis among other by redefining and expanding the capital requirements and by introduction of the liquidity requirements in the banking sector. Since banks’ liquidity and capital positions influence each other through assets structure channel, asset quality channel and profitability channel, there exists a significant relationship among capital and liquidity regulatory tools. A bank can improve its capital and liquidity ratios by lowering riskweighted assets (assets structure channel), but with the negative impact on the interest profit (profitability channel). We therefore aim to test the functionality of these two channels in relation to capital and liquidity positions in the Czech banking sector. We document the effect of the assets structure channel in case of liquidity and capital positions and effect of the profitability channel for the large banks. However, low profitability and introduction of a leverage ratio can limit the effect of assets structure channel on banks´ capital positions.

  • Issue Year: 65/2017
  • Issue No: 5
  • Page Range: 525-545
  • Page Count: 21
  • Language: Czech