Liquidity Ratios as Monetary Policy Tools: Some Historical Lessons for Macroprudential Policy
Liquidity Ratios as Monetary Policy Tools: Some Historical Lessons for Macroprudential Policy

Author: Eric Monnet

Publisher: International Monetary Fund

Published: 2019-08-16

Total Pages: 48

ISBN-13: 1513511513

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This paper explores what history can tell us about the interactions between macroprudential and monetary policy. Based on numerous historical documents, we show that liquidity ratios similar to the Liquidity Coverage Ratio (LCR) were commonly used as monetary policy tools by central banks between the 1930s and 1980s. We build a model that rationalizes the mechanisms described by contemporary central bankers, in which an increase in the liquidity ratio has contractionary effects, because it reduces the quantity of assets banks can pledge as collateral. This effect, akin to quantity rationing, is more pronounced when excess reserves are scarce.

The Journal of Finance
The Journal of Finance

Author:

Publisher:

Published: 1963

Total Pages: 772

ISBN-13:

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Publishes across all the major fields of financial research. The most widely cited academic journal on finance and one of the most widely cited journals in economics as well.

Liquidity Risk Measurement and Management
Liquidity Risk Measurement and Management

Author: Leonard Matz

Publisher: John Wiley & Sons

Published: 2006-11-10

Total Pages: 413

ISBN-13: 0470821825

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Major events such as the Asian crisis in 1997, the Russian default on short-term debt in 1998, the downfall of the hedge fund long-term capital management in 1998 and the disruption in payment systems following the World Trade Center attack in 2001, all resulted in increased management’s attention to liquidity risk. Banks have realized that adequate systems and processes for identifying, measuring, monitoring and controlling liquidity risks help them to maintain a strong liquidity position, which in turn will increase the confidence of investors and rating agencies as well as improve funding costs and availability. Liquidity Risk Measurement and Management: A Practitioner’s Guide to Global Best Practices provides the best practices in tools and techniques for bank liquidity risk measurement and management. Experienced bankers and highly regarded liquidity risk experts share their insights and practical experiences in this book.