TY - JOUR

T1 - The liquidity regulation and savings banks' liquid assets

AU - Holl, Dorothee

AU - Schertler, Andrea Gisela

PY - 2010

Y1 - 2010

N2 - For their short-term payment obligations, savings banks hold substantially more liquid assets than the liquidity regulation requires. This paper investigates whether sight deposits, an important funding source for savings banks, help in explaining liquid asset holdings in excess of regulatory requirements. We analyze whether savings banks transform sight deposits in illiquid assets less intensively than is permitted because (i) the liquidity regulation underestimates actual withdrawal rates (underestimation effect) and/or (ii) savings banks are subject to limits in their lending to non-banks that they do not offset by, for instance, medium-term interbank lending or fixed asset holdings (lending effect). In our sample, we do not find the underestimation effect to be applicable as actual deposit withdrawal rates are in most cases lower than the regulatorily specified rate. However, we find the lending effect to be at work: Savings banks with low shares of loans to non-banks do not transform sight deposits into illiquid assets as intensively as savings banks with high shares of non-bank loans. Our analysis does not only show that liquid assets positively depend on sight deposits, but also shines a light on how bank size and the individual bank's position in the interbank market affect liquid assets. (JEL G21)

AB - For their short-term payment obligations, savings banks hold substantially more liquid assets than the liquidity regulation requires. This paper investigates whether sight deposits, an important funding source for savings banks, help in explaining liquid asset holdings in excess of regulatory requirements. We analyze whether savings banks transform sight deposits in illiquid assets less intensively than is permitted because (i) the liquidity regulation underestimates actual withdrawal rates (underestimation effect) and/or (ii) savings banks are subject to limits in their lending to non-banks that they do not offset by, for instance, medium-term interbank lending or fixed asset holdings (lending effect). In our sample, we do not find the underestimation effect to be applicable as actual deposit withdrawal rates are in most cases lower than the regulatorily specified rate. However, we find the lending effect to be at work: Savings banks with low shares of loans to non-banks do not transform sight deposits into illiquid assets as intensively as savings banks with high shares of non-bank loans. Our analysis does not only show that liquid assets positively depend on sight deposits, but also shines a light on how bank size and the individual bank's position in the interbank market affect liquid assets. (JEL G21)

KW - Management studies

U2 - 10.3790/kuk.43.4.533

DO - 10.3790/kuk.43.4.533

M3 - Journal articles

VL - 43

SP - 533

EP - 558

JO - Kredit und Kapital

JF - Kredit und Kapital

SN - 0023-4591

IS - 4

ER -