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How Do We Figure Out Optimal Liquidity Regulation?

In: Achieving Financial Stability Challenges to Prudential Regulation

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Listed:
  • Douglas W. Diamond
  • Anil K. Kashyap

Abstract

There is little agreement on regulatory goals for bank liquid asset holdings and no benchmark theory on the issue, despite recent regulation in this area. Economists even have competing concepts in mind when discussing liquidity, resulting in no generally accepted empirical measure. Allen (2014), in a literature survey, concludes: “With capital regulation there is a huge literature but little agreement on the optimal level of requirements. With liquidity regulation, we do not even know what to argue about”…

Suggested Citation

  • Douglas W. Diamond & Anil K. Kashyap, 2017. "How Do We Figure Out Optimal Liquidity Regulation?," World Scientific Book Chapters, in: Douglas D Evanoff & George G Kaufman & Agnese Leonello & Simone Manganelli (ed.), Achieving Financial Stability Challenges to Prudential Regulation, chapter 12, pages 159-171, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789813223400_0012
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    More about this item

    Keywords

    Money and Banking; International Banking; Financial Instititions; Banks; Regulations; Compliance; Financial Crisis; Great Financial Crisis 2008; Microprudential; Macroprudential; Financial Stability;
    All these keywords.

    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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