Nicola Limodio

development and international economics seminar

Nicola Limodio

University of Bocconi
Bank deposits and liquidity regulation: Evidence from Ethiopia

Château Lafarge

Château Lafarge - Salle de séminaires
Château Lafarge
Route des Milles
13290 Les Milles
Vendredi 1 décembre 2017| 12:00 - 13:30

Timothée Demont : timothee.demont[at]
Alice Fabre : alice.fabre[at]


The regulation of bank liquidity can create a commitment device on repaying depositors in bad states, if deposit insurance is absent. A theoretical model shows that liquidity regulation can: 1) stimulate a deposit inflow, moderating the limited liability inefficiency; 2) promote lending and branching, if deposit growth exceeds the intermediation margin decline. Our empirical test exploits an unexpected policy change, which fostered the liquid assets of Ethiopian banks by 25\% in 2011. Exploiting the cross-sectional heterogeneity in bank size and bank-level databases, we find an increase in deposits, loans and branches, with no decline in profits.

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