Different combinations of monetary and macroprudential policy instruments have different effects on the liquidity risk of commercial banks. We examine how monetary and macroprudential policy tools separately and jointly affect the liquidity risk of commercial banks. Using quarterly data from listed Chinese commercial banks (2014–2022), we employ a least-squares dummy variable model for analysis. Three key findings emerge. First, specific combinations of monetary and macroprudential instruments mitigate liquidity risk through coordinated action. Second, while tool pairing demonstrates coordination benefits, this does not imply that the intensity of the tool’s implementation is the most logical fit. Third, the panel smooth-transition regression analysis reveals threshold effects in two critical combinations: the deposit reserve ratio with liquidity coverage ratio and the medium-term lending facility with leverage ratio. These results highlight the importance of selecting appropriate instrument combinations and calibrating their implementation levels for effective liquidity risk regulation.
Hu et al. (Tue,) studied this question.
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