Economics Financial Regulation Questions
The role of liquidity requirements in financial regulation is to ensure that financial institutions maintain sufficient liquid assets to meet their short-term obligations and withstand potential liquidity shocks. These requirements aim to promote stability in the financial system by reducing the risk of bank runs and systemic crises. By mandating a certain level of liquid assets, such as cash or highly liquid securities, regulators can enhance the ability of banks to fulfill their payment obligations and maintain confidence in the financial system.