Stephen Cecchetti, Kim Schoenholtz, 10 May 2018

Daniel Hardy, Philipp Hochreiter, 26 February 2015

A minor adverse shock to financial markets can be propagated by liquidity strains, leading to a major crisis. This column suggests a novel measure to address systemic liquidity risk – a Macroprudential Liquidity Buffer, which would require financial institutions to hold systemically liquid assets in proportion to their liabilities less regulatory capital. This proportion varies positively with growth in system-wide funding needs, so the liquidity buffer increases when non-equity funding is growing.



CEPR Policy Research