Dutch paper suggests using loan-to-deposit ratio in macroprudential policy

liquidity ratio

Macro-prudential tools could be used to manipulate banks' loan-to-deposit (LTD) ratios and ease liquidity risk, according to a working paper published by The Netherlands Bank yesterday.

The paper – A Macroprudential Approach to Address Liquidity Risk With the Loan-to-Deposit Ratio, by Jan Willem van den End – analyses the interaction between loans and deposits in 11 eurozone countries, and finds that loan growth dominates in an upturn, while deposit growth dominates in a downturn.

It proposes

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