Impact of the implementation of LCR (liquidity coverage ratio) in banking lending

This paper studies the causal relationship between the Liquidity Coverage Ratio regulation and banks´ lending activity in Europe. Using a fixed-effects panel data estimation, we found evidence that the LCR does not restricts banks’ lending activity to households, non-financial corporations, and from an aggregate perspective. This result supports the use of the LCR as a minimum regulatory requirement. However, when looking into details of the LCR, the impact of the High-Quality Liquid Assets held by a bank is significant on their loans provided. In particular, the credit is reduced by 0.305% on average when the HQLAs increase by 1%