This paper investigates increased liquidity provision by market makers resulting from their ability to reduce balance sheet encumbrance through the use of central counterparties (CCPs). The introduction Basel III leverage rule constitutes a shock makers’ sheets and thus affects capacity intermediate trades. Using trade-by-trade data sovereign bond markets, we show that CCP members decreased les...

Abstract We investigate how capital requirements affect loan rates by studying the 50% increase in risk weight for high volatility commercial real estate (HVCRE) loans under Basel III. Exploiting variation terms and exposure to period after rule’s implementation, we find that a one-percentage-point raises 8.5 basis points. Using model of bank funding costs, demonstrate timing scope HVCRE rule i...

Abstract We introduce new forecast encompassing tests for the risk measure Expected Shortfall (ES). The ES has received much attention since its introduction into Basel III Accords, which stipulate use as primary market international banking regulation. utilize joint loss functions pair and Value at Risk to set up three test variants. are built on an asymptotic theory that is robust misspecific...