The impact of the capital and liquidity regulations on the banking sector after global economic and financial crisis: comparative advantage and disadvantage in risk monitoring

This study attempts to investigate the impact of the capital and liquidity regulations and identify awareness to the fact that the banks’ responses might create involuntary malevolence: a condensed supply of bank loans, incentives to securitize assets, and adverse incentives on bank risk monitoring. As a result the privately- based mechanisms that set most creditors at risk are the best way to increase the dependability of banking markets. It is argued that interbank debt should be put at risk because banks have a comparative advantage in risk monitoring. A mechanism is desirable to expand the maturity of short-term debt at the time of a credit-led panic as putting short-term interbank at risk increases the danger of sudden deposit withdrawals.