Liquidity regulation drove nearly 50% increase in private credit volumes in U.S. counties with larger bank footprints

Following the introduction of the Liquidity Coverage Ratio (LCR) after the 2008–09 financial crisis, private credit grew significantly more in U.S. counties with a larger footprint of banks subject to the LCR or with LCR banks facing greater initial liquidity shortfalls. A one standard deviation higher ex ante footprint of LCR banks resulted in nearly 50% higher private credit volumes. The economic magnitude of this effect is comparable to that of the increased capital requirements from the 2012 CCAR stress tests.