COVID-19 as a stress test: Assessing the bank regulatory framework

The broad economic damage of the COVID-19 pandemic poses the first major test of the bank regulatory reforms put in place after the Global Financial Crisis. Our study assesses the U.S. regulatory framework, with an emphasis on capital and liquidity requirements. Prior to the COVID-19 crisis, banks w...

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Bibliographic Details
Published inJournal of financial stability Vol. 61; p. 101016
Main Authors Duncan, Elizabeth, Horvath, Akos, Iercosan, Diana, Loudis, Bert, Maddrey, Alice, Martinez, Francis, Mooney, Timothy, Ranish, Ben, Wang, Ke, Warusawitharana, Missaka, Wix, Carlo
Format Journal Article
LanguageEnglish
Published Elsevier B.V 01.08.2022
Subjects
Banking regulation
Capital regulation
COVID-19
Empirical banking
Liquidity regulation
COVID-19
Liquidity regulation
Banking regulation
Capital regulation
Empirical banking
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Summary:The broad economic damage of the COVID-19 pandemic poses the first major test of the bank regulatory reforms put in place after the Global Financial Crisis. Our study assesses the U.S. regulatory framework, with an emphasis on capital and liquidity requirements. Prior to the COVID-19 crisis, banks were well capitalized and held ample liquid assets, which partly reflects enhanced requirements. The overall robust capital and liquidity levels resulted in a resilient banking system, which maintained lending and market making through the early stages of the pandemic. Trading activity was a source of strength for banks, reflecting in part a prudent regulatory approach. That said, leverage requirements are associated with more repo position netting by banks, with potential implications for market making.
ISSN:1572-3089
1878-0962
1572-3089
DOI:10.1016/j.jfs.2022.101016