engleski

Liquidity Risk Management Paradox in Contemporary Banking (Re)regulation

The purpose of this paper is to encourage discussion on contemporary banking (re)regulation practice that has recently been substantially supplemented with new requirements in the area of liquidity risk management. With reference to this, two research goals are set up. First, theoretical propositions regarding the impact of the aforementioned liquidity requirements on bank behaviour are intended to be developed. Once again theoretical framework of regulatory struggle is expected to be identified in the financial sector, yet in the area that has not been as thoroughly considered. Thus, hypothesis on the neutral or positive influence of conservative liquidity risk management practices should be abandoned and positive impact of excessive liquidity prescribing on profit reduction and risk acceptance indirectly and directly proposed. Second, as arguments for the present liquidity risk regulation are expected to be found in subeffectiveness of the former liquidity requirements the latter needs be more seriously examined, especially for the period of ongoing financial crisis. Empirical data will focus on Croatian banking sector and partly on data from European Monetary Union. In addition, some lender of last resort behavioral patterns might be revitalized. Altogether, the paper findings are expected to be worthy due to presentation of scopes of the earlier and critical remarks of the current liquidity risk practice. However, developed theoretical propositions of liquidity risk management paradox could be more seriously empirically tested only in a time lag when sizeable effects of reregulation could be recorded.

liquidity risk; prudential regulation; lender of last resort

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