Corporate Liquidity under Basel III: The Credit Line Channel

Date
2022
Authors
Muthukrishnan, Pradeep
Contributor
Advisor
Department
Instructor
Depositor
Speaker
Researcher
Consultant
Interviewer
Journal Title
Journal ISSN
Volume Title
Publisher
Volume
Number/Issue
Starting Page
Ending Page
Alternative Title
Abstract
The Basel III Liquidity Coverage Ratio (LCR) rule imposed unprecedented liquidity requirements on banks. I show that the regulation curtails banks’ ability to originate credit lines, with banks seeking to pass on increased maintenance costs to borrowers. I introduce novel metrics drawn from a machine learning analysis of contractual agreements and demonstrate that banks retain greater control in credit lines. The result is a decline in credit line origination and a market that is unfavorable to borrowers. Financially unconstrained firms drive borrowing declines and turn to debt-financed cash for corporate liquidity, rendering them riskier. My results are novel in revealing changes to corporate liquidity preferences and risk profiles when intermediation is costly.
Description
Keywords
Liquidity Coverage Ratio, Credit Lines, Shadow Banking
Citation
Extent
Format
Geographic Location
Time Period
Related To
Rights
Rights Holder
Email libraryada-l@lists.hawaii.edu if you need this content in ADA-compliant format.