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Luisa Fascione
- 15 November 2024
- OCCASIONAL PAPER SERIES - No. 361Details
- Abstract
- Since the March 2023 banking turmoil, a policy debate has emerged concerning the unprecedented scale and speed of the observed deposit outflows. Have recent stress episodes and developments in technology structurally changed depositors’ behaviour? Are the Basel III liquidity coverage ratio (LCR) run-off assumptions for cash outflows still fit for purpose? Leveraging on monthly liquidity reporting for a sample of 110 significant institutions (SIs) between 2016 and 2024, we shed light on some stylised facts pertaining to the composition of deposit flows in the banking union. Overall, we find limited evidence of a structural change in the statistical behaviour of deposit flows to date. For all but one of the deposit classes included in the analysis, more than 90% of observable net outflows remained below the LCR run-off assumptions during the whole sample period. Some extreme deposit outflows recorded during the COVID-19 pandemic and for a few SIs assessed as failing or likely to fail (FOLTF) remain rare tail events for which the LCR standard was not designed.
- JEL Code
- G20 : Financial Economics→Financial Institutions and Services→General
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
- 6 December 2023
- MACROPRUDENTIAL BULLETIN - FOCUS - No. 23Details
- Abstract
- This box reviews the objectives and design of the liquidity coverage ratio (LCR) in the Basel Framework. It explains why liquidity regulation was introduced and how it is calibrated to enable banks to withstand a predefined hypothetical stress scenario combining both market-wide and idiosyncratic stress elements. The box also highlights the fact that the LCR is not designed to cover all tail events involving liquidity risk. Based on data for significant euro area (EA) institutions, the box finds that around 92% of all observed net outflow rates for retail deposits were lower than the outflow rates assumed in the LCR between 2016 and 2023. It also shows that ample liquidity buffers helped significant banks in the euro area to withstand the banking stress seen in March 2023 in other jurisdictions. Nevertheless, further analysis, including on the driving factors for some of the outliers observed during stress episodes, could facilitate a better understanding of whether the LCR calibration is working as intended. To anticipate and address extreme tail events (as well as risks) not covered by the LCR, liquidity regulation needs to be complemented by frequent and granular reporting as well as rigorous supervision.
- JEL Code
- G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation