Fed paper explores balance sheet effects of liquidity rules

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How banks choose to allocate their liquid asset holdings has implications for the effectiveness of monetary policy, according to research published by the Federal Reserve.

How have banks been managing the composition of high-quality liquid assets? by Jane Ihrig, Edward Kim, Ashish Kumbhat, Cindy Vojtech and Gretchen Weinbach finds banks initially allocated liquid assets, held under the Basel III liquidity coverage ratio (LCR), as excess reserves with the Fed. Later, some banks shifted their

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