Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/320283 
Year of Publication: 
2025
Citation: 
[Journal:] Theoretical Economics [ISSN:] 1555-7561 [Volume:] 20 [Issue:] 1 [Year:] 2025 [Pages:] 131-168
Publisher: 
The Econometric Society, New Haven, CT
Abstract: 
Liquidity requirements for commercial banks improve risk-sharing for depositors. Nevertheless, shadow banks, issuing securities with lower liquidity, operate outside such regulatory constraints. In an economy featuring shadow banks with a constant level of liquidity for shadow bank securities, higher liquidity requirements lead to a reduction in aggregate liquidity provision, owing to regulatory arbitrage incentives. Conversely, when the liquidity of shadow bank securities decreases with the market share of shadow banks, the incentive for regulatory arbitrage is reduced and, thus, higher liquidity requirements could enhance aggregate liquidity provision.
Subjects: 
liquidity requirements
liquidity shortage
regulatory arbitrage
search and matching
Shadow banking
JEL: 
E40
E50
G20
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-nc Logo
Document Type: 
Article

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