Empirical essays on bank liquidity creation and maturity transformation risk : implications for prudential regulation.

Summary The objective of this thesis is to analyze the advantages of adding liquidity standards in the current banking regulatory framework to strengthen bank stability. Chapter 1 reviews the existing literature and presents stylized facts focusing on the extent of banks’ liquidity creation and maturity transformation risk. The chapter also investigates the sensitivity of maturity transformation risk to several factors depending on banks’ business models. The findings raise several challenges for both banks and regulators to improve the profile of banks’ maturity transformation risk. Chapter 2 examines whether the introduction of a liquidity measure as defined in the Basel III accords can contribute to improve the prediction of bank financial distress. The results show that the Basel III net stable funding ratio adds predictive value to models relying on liquidity ratios from the CAMELS approach to explain bank default probability. The findings support the need to improve the definition of liquidity to predict bank financial distress. Chapter 3 investigates the relationship between bank capital buffer and liquidity. The purpose is to examine whether banks maintain or strengthen their capital buffer when they face lower liquidity. The empirical investigation supports the need to implement minimum liquidity ratios concomitant to capital ratios, as stressed by the Basel Committee.