Bank capital and liquidity risk: Influence of crisis and regulatory intervention

Abstract

Abstract This study analyses how capital affects asset and liability liquidity risk in U.S. commercial banks during stable and crisis periods. We find that higher capital increases idiosyncratic liquidity risk by decreasing cash and near-cash assets, raising fed funds sold, and reducing fed funds purchased. On the liability-side, there is a shift from liquid to investment deposits and an increase in off-balance-sheet items. These patterns hold across crises, with some variation during covid-19 period. Our findings suggest that policymakers must balance capital regulations and ensure tailored crisis interventions and monitoring for specific liquidity components. Our results are largely robust to several alternate variable proxies and model specifications.

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 16 citations exist upstream.

Papers that cite the same references — the relational fallback while embeddings are still backfilling.