Market reaction to bank liquidity regulation

Bruno, Brunella and Onali, Enrico and Schaeck, Klaus (2018) Market reaction to bank liquidity regulation. Journal of Financial and Quantitative Analysis, 53 (02). pp. 899-935. ISSN 1756-6916

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Abstract

We measure market reactions to announcements concerning liquidity regulation, a key innovation in the Basel framework. Our initial results show that liquidity regulation attracts negative abnormal returns. However, the price responses are less pronounced when coinciding announcements concerning capital regulation are backed out, suggesting that markets do not consider liquidity regulation to be binding. Bank- and country-specific characteristics also matter. Liquid balance sheets and high charter values increase abnormal returns whereas smaller long-term funding mismatches reduce abnormal returns. Banks located in countries with large government debt and tight interbank conditions or with prior domestic liquidity regulation display lower abnormal returns.

Item Type: Article
RIS ID: https://nottingham-repository.worktribe.com/output/929365
Additional Information: This article has been published in a revised form in Journal of Financial and Quantitative Analysis http://doi.org/10.1017/S0022109017001089. This version is free to view and download for private research and study only. Not for re-distribution, re-sale or use in derivative works. © Michael G. Foster School of Business, University of Washington 2018.
Schools/Departments: University of Nottingham, UK > Faculty of Social Sciences > Nottingham University Business School
Identification Number: https://doi.org/10.1017/S0022109017001089
Depositing User: Eprints, Support
Date Deposited: 19 Jun 2018 10:18
Last Modified: 04 May 2020 19:34
URI: http://eprints.nottingham.ac.uk/id/eprint/52499

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