IDEAS home Printed from https://ideas.repec.org/a/pal/jbkreg/v15y2014i1p1-13.html
   My bibliography  Save this article

The cost of bank liquidity

Author

Listed:
  • William C Handorf

Abstract

Many banks are under regulatory pressure from Basel III to improve liquidity by investing in more short-term, low-risk securities and to fund assets by more long-term, stable sources of debt. The relationship between short-term and long-term interest rates is known as the term structure of interest rates long evaluated by financial economists. This article empirically demonstrates the importance of a liquidity premium and a credit risk premium within the term structure and notes the financial consequence of these incremental costs on banks trying to enhance their liquidity coverage ratio or their net stable funding ratio. Liquidity has a cost that will reduce bank profits via a lower net interest spread. If bank liquidity is sufficient to withstand subsequent periods of market stress, the regulatory plan will reduce public expenditures often associated with bank failure.

Suggested Citation

  • William C Handorf, 2014. "The cost of bank liquidity," Journal of Banking Regulation, Palgrave Macmillan, vol. 15(1), pages 1-13, January.
  • Handle: RePEc:pal:jbkreg:v:15:y:2014:i:1:p:1-13
    as

    Download full text from publisher

    File URL: http://www.palgrave-journals.com/jbr/journal/v15/n1/pdf/jbr201214a.pdf
    File Function: Link to full text PDF
    Download Restriction: Access to full text is restricted to subscribers.

    File URL: http://www.palgrave-journals.com/jbr/journal/v15/n1/full/jbr201214a.html
    File Function: Link to full text HTML
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sarmiento, Miguel & Galán, Jorge E., 2017. "The influence of risk-taking on bank efficiency: Evidence from Colombia," Emerging Markets Review, Elsevier, vol. 32(C), pages 52-73.
    2. Yiannis Anagnostopoulos & Jackie Kabeega, 2019. "Insider perspectives on European banking challenges in the post-crisis regulation environment," Journal of Banking Regulation, Palgrave Macmillan, vol. 20(2), pages 136-158, June.
    3. David Grossmann & Peter Scholz, 2019. "The golden rule of banking: funding cost risks of bank business models," Journal of Banking Regulation, Palgrave Macmillan, vol. 20(2), pages 174-196, June.
    4. Anureet Virk Sidhu & Shailesh Rastogi & Rajani Gupte & Venkata Mrudula Bhimavarapu, 2022. "Impact of Liquidity Coverage Ratio on Performance of Select Indian Banks," JRFM, MDPI, vol. 15(5), pages 1-17, May.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pal:jbkreg:v:15:y:2014:i:1:p:1-13. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.palgrave-journals.com/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.