The Risk-Taking Channel of Liquidity Regulations and Monetary Policy

Imhof, Stephan; Monnet, Cyril; Zhang, Shengxing (July 2018). The Risk-Taking Channel of Liquidity Regulations and Monetary Policy (Discussion Papers 18-15). Bern: Department of Economics

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We study the implications of liquidity regulations and monetary policy on depositmaking and risk-taking. Banks give risky loans by creating deposits that firms use to pay suppliers. Firms and banks can take more or less risk. In equilibrium, higher liquidity requirements always lower risk at the cost of lower investment. Nevertheless, a positive liquidity requirement is always optimal. Monetary conditions affect the optimal size of liquidity requirements, and the optimal size is countercyclical. It is only optimal to impose a 100% liquidity requirement when the nominal interest rate is sufficiently low.

Item Type:

Working Paper

Division/Institute:

03 Faculty of Business, Economics and Social Sciences > Department of Economics

UniBE Contributor:

Monnet, Cyril and Zhang, Shengxing

Subjects:

300 Social sciences, sociology & anthropology > 330 Economics

Series:

Discussion Papers

Publisher:

Department of Economics

Language:

English

Submitter:

Lars Tschannen

Date Deposited:

03 Sep 2020 08:10

Last Modified:

03 Sep 2020 08:10

BORIS DOI:

10.7892/boris.145865

URI:

https://boris.unibe.ch/id/eprint/145865

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