Liquidity regulation and bank lending

Bank liquidity shortages during the global financial crisis of 2007–2009 led to introduction regulations, impact which has attracted attention academics and policymakers. In this paper, we investigate regulation on bank lending. As a setting, use Netherlands, where Liquidity Balance Rule (LBR) was introduced in 2003. The LBR imposed Dutch banks only did not apply other operating elsewhere within Eurozone. Using differential regulatory treatment overcome identification concerns difference-in-differences approach, find that increased volume lending by relative located Increased equity, an inflow retail deposits subsequent increase balance sheet size allowed despite having meet requirements. also affected loan composition (with corporate increasing more than mortgage lending) maturity profile portfolios. Our results have relevance for policymakers tasked with monitoring regulations real economy.