We present a comprehensive analysis to calculate the Basel III liquidity coverage ratio (LCR) and the net stable funding ratio (NSFR) of U.S. commercial banks using Call Report data over the period 2001–2011, and provide indirect empirical evidence on net cash outflow rates of certain liability categories. In addition, we examine potential links between Basel III liquidity risk measures and bank failures using a model that differentiates between idiosyncratic and systemic liquidity risks. We find that while both the NSFR and the LCR have limited effects on bank failures, the systemic liquidity risk is a major contributor to bank failures in 2009 and 2010. This finding suggests that an effective framework of liquidity risk management needs to target liquidity risk at both the individual level and the system level.

Corporate bond spreads are affected by both credit risk and liquidity and it is difficult to disentangle the two factors empirically. In this paper we separate out the credit risk component by examining bonds that are issued by the same firm and that trade on the same day, allowing us to examine the effects of liquidity in a sample of bond pairs. We examine standard liquidity measures to determine how well they explain the differences in the two bonds’ yield spreads and find that the proxies do a poor job of measuring liquidity effects. Incorporating liquidity proxies related to other bonds issued by the firm and those for bonds of other firms can significantly improve the explanatory power. Still, a significant portion of the spread is left unexplained and it is largely driven by a common unknown factor. We conclude that good proxies for the liquidity component of corporate bond spreads remain elusive.