TY  - UNPD
A1  - Gersbach, Hans
A1  - Haller, Hans
A1  - Zelzner, Sebastian
T1  - Enough liquidity with enough capital - and vice versa?
N2  - We study the interplay of capital and liquidity regulation in a general equilibrium setting by focusing on future funding risks. The model consists of a banking sector with long-term illiquid investment opportunities that need to be financed by shortterm debt and by issuing equity. Reliance on refinancing long-term investment in the middle of the life-time is risky, since the next generation of potential short-term debt holders may not be willing to provide funding when the return prospects on the long-term investment turn out to be bad. For moderate return risk, equilibria with and without bank default coexist, and bank default is a self-fulfilling prophecy. Capital and liquidity regulation can prevent bank default and may implement the first-best. Yet the former is more powerful in ruling out undesirable equilibria and thus dominates liquidity regulation. Adding liquidity regulation to optimal capital regulation is redundant.
T3  - CFS working paper series - No. 714 
KW  - financial intermediation
KW  - funding risk
KW  - bank default
KW  - banking regulation
KW  - liquidity requirements
KW  - capital requirements
Y1  - 2023
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/72286
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30:3-722863
UR  - https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4573919
PB  - Center for Financial Studies
CY  - Frankfurt, M.
ER  -