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Systemic Liquidity Risk
The new Basel III regulatory package offers the first global framework for the regulation of liquidity risk. This new regulation intends to address the externalities imposed upon the rest of the financial system (and, ultimately, on the real economy) generated by excessive maturity mismatches. Nevertheless, the new regulation focuses essentially on the externalities generated by each bank individually, thus being dominantly microprudential. We argue that there might also be a specific role for the macroprudential regulation of liquidity risk, most notably in what concerns systemic risk. Our argument is based on theoretical results by Farhi and Tirole (2012) and Ratnovski (2009), and on empirical evidence by Bonfim and Kim (2012). In this article we present some of those empirical results, which provide evidence supporting the existence of collective risk-taking strategies in liquidity risk management, most notably amongst the largest banks.