Market reaction to bank liquidity regulation

Brunella Bruno, Enrico Onali, Klaus Schaeck

Research output: Contribution to journalArticlepeer-review


We measure market reactions to announcements concerning liquidity regulation, a key innovation in the Basel framework. Our initial results show that liquidity regulation attracts negative abnormal returns. However, the price responses are less pronounced when coinciding announcements concerning capital regulation are backed out, suggesting that markets do not consider liquidity regulation to be binding. Bank- and country-specific characteristics also matter. Liquid balance sheets and high charter values increase abnormal returns whereas smaller long-term funding mismatches reduce abnormal returns. Banks located in countries with large government debt and tight interbank conditions or with prior domestic liquidity regulation display lower abnormal returns.
Original languageEnglish
Pages (from-to)899-935
JournalJournal of Financial and Quantitative Analysis
Issue number2
Early online date4 Mar 2018
Publication statusPublished - 1 Apr 2018

Bibliographical note

The material has been accepted for publication in a revised form, with a link to the journal’s site on


  • liquidity regulation
  • market reaction
  • event study
  • Basel III


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