Abstract
Regulation of the financial sector is major aspect of consideration by the regulating authority, since financial sector highly influences the performance of the entire economy. The Global Financial Crises underlined the importance of liquidity management,when the credit crisis led to a liquidity crisis. Thus, Jordanian regulatory authorities are trying to achieve and maintain the financial stability by assessment of the banks’ financial condition and through regulations that ensure the stability and prevent failures that can occur under adverse circumstances. The study aim to analyze the impact of a prudential regulation on the Jordanian Banks liquidity. The specific objective in this case is; to determine whether the current prudential regulation enhance the banks liquidity in Jordan, or financial regulation still need additional updates. This study examines the impact of both Microprudential and Macroprudential regulation on Banks Liquidity Ratio, within the context of the Jordanian Banking Sector. To carry out the analysis, managed to collect the annual data for 12 listed during the period 2005-2018 with data arranged in the form of a panel, by using Random Effect Approach Regression, and compared the bank liquidity ratios during period before and after Global Financial Crisis (2008).The results indicate that Macroprudential tools have positive significant impact on Banks Liquidity Ratio, while micro is not. The main conclusions from this research indicate that while liquidity requirements tend to reduce liquidity risk, it appear to be more costly to comply with, reduced bank liquidity, and the banking sector still need additional Regulation updates to enhance banks Liquidity.
Highlights
Prudential Liquidity Requirements are a major regulatory instrument against liquidity risk, introduced as part of the Basel III accord in the form of a liquidity coverage ratio (LCR) and a net stable funding ratio (NSFR) [14]
Liquidity of banks are monitored with increased interest like as a major indicator of bank performance, by implementing Committee on Banking Supervision explicit mandatory rules for liquidity regulation and supervision in its new framework for banking regulation [3]
This study examines the impact of both Microprudential and Macroprudential regulation on Banks Liquidity Ratio, within the context of the Jordanian banking industry
Summary
Prudential Liquidity Requirements are a major regulatory instrument against liquidity risk, introduced as part of the Basel III accord in the form of a liquidity coverage ratio (LCR) and a net stable funding ratio (NSFR) [14]. The regulator Central Bank of Jordan continuously improve financial sector through implementing macro and micro prudential supervision policies that maintain financial and banking stability. In this regard, liquidity of banks are monitored with increased interest like as a major indicator of bank performance, by implementing Committee on Banking Supervision explicit mandatory rules for liquidity regulation and supervision in its new framework for banking regulation (the Basel III Accord) [3]. Stress tests in particular are credited with increasing capital buffers at systemically important financial institutions in the wake of the global financial crisis. Microprudential instruments as bank stress tests and supervisory guidance, These instruments have been used by supervisors to inhibit excessive risk-taking or prevent growth in large banks’ credit risk exposure from outpacing capital accumulation objectives commonly referred to as “leanagainst-the-wind.” Stress tests in particular are credited with increasing capital buffers at systemically important financial institutions in the wake of the global financial crisis.
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