Liquidity regulation: rationales, benefits and costs

| Publication date: 3 Feb 2016 | External Author(s): De Nicolò, G | JEL Classification: G21, G28 | Journal: National Institute Economic Review Issue 235 | Publisher: Sage Publications, London

This paper reviews the market failures that may justify the need for liquidity regulation, assesses whether liquidity regulation is a necessary complement to Lender of Last Resort (LOLR) policies, capital regulation and prompt corrective action, surveys the available evidence on the net benefits of liquidity regulation, and concludes by outlining research directions useful to improve bank regulation design.

Keyword tags: 
liquidity crises
bank regulation
liquidity requirements