TY  - UNPD
A1  - Haselmann, Rainer
A1  - Kick, Thomas
A1  - Singla, Shikhar
A1  - Vig, Vikrant
T1  - Capital regulation, market-making, and liquidity
T2  - LawFin working paper ; No. 44
N2  - We employ a proprietary transaction-level dataset in Germany to examine how capital requirements affect the liquidity of corporate bonds. Using the 2011 European Banking Authority capital exercise that mandated certain banks to increase regulatory capital, we find that affected banks reduce their inventory holdings, pre-arrange more trades, and have smaller average trade size. While non-bank affiliated dealers increase their market-making activity, they are unable to bridge this gap - aggregate liquidity declines. Our results are stronger for banks with a higher capital shortfall, for non-investment grade bonds, and for bonds where the affected banks were the dominant market-maker.
T3  - LawFin Working Paper - 44 
KW  - market-making
KW  - capital regulation
KW  - bond market liquidity
Y1  - 2022
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/68205
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30:3-682053
UR  - https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4250896
IS  - January 30, 2022
PB  - Center for Advanced Studies on the Foundations of Law and Finance, House of Finance, Goethe University
CY  - Frankfurt am Main
ER  -