Why do savings banks transformsight deposits into illiquid assets lessintensively than the regulation allows?

In Germany, the Regulation on the Liquidity of Institutions (formerly Principle II) requiresbanks to have a liquidity ratio which is at least equal to one. This ratio is calculated by dividingregulatorily specified liquid assets that are available within one month by short-term paymentobligations that are callable within this period. Savings banks have almost three times as manyliquid assets available for their payment obligations than the regulator. requires. This paperinvestigates whether sight deposits, which are not only factored into the payment obligations at10% but which are also an important funding source for savings banks, contribute to liquid assetholdings in excess of the regulatory requirements. Dorothee Holl, Andrea Schertler