We study the effects of regulatory interventions and capital support (bailouts) on banks' liquidity creation. We rely on instrumental variables to deal with possible endogeneity concerns. Our key findings, which are based on a unique supervisory German dataset, are that regulatory interventions...

Liquidity creation is a core function of banks and an important economic service to the economy. This chapter carefully examines the theoretical and empirical literature on bank liquidity creation. The focus is on the economics of bank liquidity creation, both in the traditional relationship...

Liquidity creation is one of banks’ raisons d’être. But what happens to liquidity creation and risk taking when a bank is identified as distressed by regulatory bodies and subjected to regulatory interventions and/or receives capital injections? What are the long-run effects of such...