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Liquidity Coverage Ratio, Ownership, Stability: Evidence from Iran

Author

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  • Shahchera , Mahshid

    (Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran)

  • Taheri , Mandana

    (Alzahra University & Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran)

Abstract

The Basel Committee on Banking Supervision (BCBS), in response to the recent financial crisis, has developed new stability rules aimed at preventing financial crises in the future. This paper uses the new Liquidity Ratio (LCR) and attempts to determine the impact of this ratio on the stability of the banking system. The objective of the LCR is to promote the short-term resilience of the liquidity risk profile of banks. It does this by ensuring that banks have an adequate stock of unencumbered high-quality liquid assets. The LCR will expand the banking sector’s ability to bear shocks arising from financial and economic stress. We find that liquidity coverage ratio as a requirement in the regulation develops bank stability. Specifically, banks with more liquidity coverage ratio are more stable. The role of banking ownership is also pursued as another goal in the paper. According to the results, there is the positive effect of the liquidity coverage ratio on stability in private banks and there are the negative effects of the liquidity coverage ratio on stability in state and specialist banks. We find that there is a difference between state banks and specialized banks with private banks. The state and specialized bank have more liquidity risk than private banks in Iran.

Suggested Citation

  • Shahchera , Mahshid & Taheri , Mandana, 2017. "Liquidity Coverage Ratio, Ownership, Stability: Evidence from Iran," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 12(2), pages 175-191, April.
    • Handle: RePEc:mbr:jmonec:v:12:y:2017:i:2:p:175-191
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    More about this item

    Keywords

    Banking; Stability; GMM; Liquidity Coverage Ratio;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development

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