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...