Bank Liquidity Regulation and the Growth of Private Credit

We study the role of bank liquidity regulation in the growth of private credit. Following the introduction of the liquidity coverage ratio (LCR), private credit increases significantly more in U.S. counties where banks subject to the LCR or where LCR-banks with a greater initial liquidity shortfall had a larger footprint. Our estimated effect of the LCR on private credit growth is comparable in economic magnitude to that of the capital shock from stress tests. The relationship between LCR footprint and private credit is stronger in industries that are more reliant on credit.