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The Federal Reserve is currently in the process of reducing the size of its balance sheet. Major questions, especially in light of the surprising impact of its 2019 reductions, are what its ultimate size will be. Many factors will play into that, including the interaction of bank capital and liquidity requirements with the size of reserves and the impact on the ability of the private market to absorb Treasury debt issuance, the willingness of banks to regularly use the discount window and other market participants to borrow at the standing repo facility, as well as the ongoing risk that a large Fed balance sheet can generate large losses to the System. [ABSTRACT FROM AUTHOR]

This paper evaluates liquidity requirements and public liquidity injections in the context of financial crises, using a model that includes near-money assets. Some key effects are transmitted through liquidity premia and the price of liquid assets, producing a heterogeneous impact that depends on an agent's holdings of liquid assets. In addition, some agents prefer policies that do not fully relax their liquidity constraints because these policies are associated with higher prices. Liquidity requirements and liquidity injections have the opposite impact on liquidity premia and combining them leads to Pareto improvements that cannot be achieved by each policy separately. This paper was accepted by Gustavo Manso, finance. Funding: This work was supported by the Wisconsin Alumni Research Foundation. Supplemental Material: The data files are available at https://doi.org/10.1287/mnsc.2023.4737. [ABSTRACT FROM AUTHOR]

Maintaining sufficient liquidity in the financial system is vital for its stability. However, since returns on liquid assets are typically low, individual financial institutions may seek to hold fewer such assets, especially if they believe they can rely on other institutions for liquidity support. We examine whether state banks in the early 1900s took advantage of relatively high cash balances maintained by national banks, due to reserve requirements, to hold less cash themselves. We find that state banks did hold less cash in places where both state legal requirements were lower and national banks were more prevalent. [ABSTRACT FROM AUTHOR]

The core function of a commercial bank is the provision of credit facilities to its customers and to keep the flow and cycle of economic and financial resources balanced. Banks can only perform these functions if they are well regulated and efficient. The main focus of this study is to analyse the efficiency of African banks, most importantly after the 2008 global financial crisis when the Basel III regulations were popularly adopted by banks globally. The research focus was examined in two ways, the first part focused on investigating the impact of the Basel III capital regulations on the operational and investment efficiency of African banks by using the random effects and pooled ordinary least square panel data regression models. The second part examined if the African banks are indeed efficient by analysing their level of efficiency using the input-oriented DEA approach. The study used audited bank-level data from 45 listed banks operating in six African nations, namely, South Africa, Nigeria, Kenya, Tanzania, Uganda and Malawi, that have adopted the Basel III Accord for the period from 2010 to 2019. The bank-level data were obtained from the IRESS database. The findings revealed that capital buffer premiums significantly affect the operating and investment efficiency of African banks positively. This relationship implies that the capital buffer premium does not only serve as cushion capital against financial, market and economic shocks but also improves the banks' efficiency by influencing the banks' decisions and perspective on cost containment strategies. Another key finding is the positive influence the liquidity coverage ratio has on banks' operational efficiency. The implication of this relationship may simply mean that African banks with well-performing liquidity ratios are efficient in their operations with the ability to meet their short-term obligations such as meeting customers' credit needs, unannounced depositors' withdrawals and creditors' repayments, amongst others. This result could well be interpreted that adopting stricter liquidity requirements creates a liquidity buffer for African banks, giving them cushion confidence to undertake profitable and high-yielding projects, which invariably lead to increased profitability and operational efficiency. Furthermore, the DEA results showed that the sampled banks are operationally efficient with an aggregate of 84.8%, and for their investment efficiency, an aggregate of 94.9%. These findings suggest that African banks are largely efficient and can survive any possible financial or economic crisis. It can be put forward that it is probable that banks that are yet to adopt the Basel III Accord or strengthen their capital and liquidity base, are less efficient and might fail during a global crisis. The current work suggests some appropriate policy-based recommendations. [ABSTRACT FROM AUTHOR]