This report presents an overview of the theory of regulation in general, with special attention for the regulation of banks. Two theories of government regulation are described. The first, normative, theory uses market failures as the justification of government regulation. The second, positive,...

The Basel 3 Liquidity Coverage Ratio (LCR) is a micro prudential instrument to strengthen the liquidity position of banks. However if in extreme scenarios the LCR becomes a binding constraint, the interaction of bank behaviour with the regulatory rule can have negative externalities. We simulate...

Government bonds receive preferential treatment in financial regulation. The purpose of this paper is to analyze the impact of this preferential treatment on banks' demand for government bonds. Using unique transaction-level data, our analysis suggests that preferential treatment in liquidity...

We investigate 62 Dutch banks' liquidity behaviour between January 2004 and March 2010, when these banks were subject to a liquidity regulation that is very similar to Basel III's Liquidity Coverage Ratio (LCR). We find that most banks hold more liquid assets against their stock of liquid...

This paper analyzes the trade-off between financial stability and credit rationing that arises when increasing capital requirements. It extends the Stiglitz-Weiss model of credit rationing to allow for bank default. Bank capital structure then matters for lending incentives. With default and...

The Diamond-Dybvig model provides an explanation for: (1) the existence of banks as a risk sharing agreement between depositors against unexpected liquidity needs, (2) bank runs as an act of collective irrationality by rational depositors, and (3) the introduction of deposit insurance as an...

This paper presents an analysis on the sensitivity of the Dutch interbank payment system with respect to the value transferred and the amount of available collateral. The Dutch system can be characterised as a system with a few large and many relatively small participants.Historical data has...

This paper provides an overview of the literature on intraday credit in payment systems to date and explores the dilemma central banks face when deciding on their intraday credit policies. On the one hand, any strategy in which the costs of liquidity are not fully borne by payment system...

This paper assesses the impact of an operational failure at one of the biggest participants in the Dutch interbank payment system, varying the time at which the disruption takes place. Liquidity levels equal historical levels. The impact of such a disruption is quantified in terms of the...