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Bank Liquidity Risk and Performance

Published on Dec 29, 2017in Review of Pacific Basin Financial Markets and Policies
· DOI :10.1142/S0219091518500078
Yi-Kai Chen2
Estimated H-index: 2
(NUK: National University of Kaohsiung),
Chung-Hua Shen20
Estimated H-index: 20
(Shih Chien University)
+ 1 AuthorsChuan-Yi Yeh1
Estimated H-index: 1
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Abstract
This study employs an alternative measure of liquidity risk to investigate its determinants by using an unbalanced panel dataset of commercial banks in 12 advanced economies over the period 1994–2006. Dependence on liquid assets for external funding, supervisory and regulatory factors, and macroeconomic factors are all determinants of liquidity risk. Because of higher funding costs for obtaining liquidity, liquidity risk is regarded as a discount for bank profitability, yet liquidity risk shows a premium on bank performance in terms of banks’ net interest margins. Liquidity risk has reverse impacts on bank performance in a market-based financial system.
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  • References (59)
  • Citations (13)
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References59
Newest
Published on Sep 1, 2016in Journal of Money, Credit and Banking1.78
Clemens Bonner3
Estimated H-index: 3
(De Nederlandsche Bank)
The purpose of this paper is to analyze the impact of preferential regulatory treatment on banks’ demand for government bonds. Using unique transaction-level data, our analysis suggests that preferential treatment in microprudential liquidity and capital regulation significantly increases banks’ demand for government bonds. Liquidity and capital regulation also seem to incentivize banks to substitute other bonds with government bonds. We also find evidence that this "regulatory effect" leads ban...
Aigbe Akhigbe21
Estimated H-index: 21
(University of Akron),
Anna D. Martin16
Estimated H-index: 16
(St. John's University),
Ann Marie Whyte13
Estimated H-index: 13
(UCF: University of Central Florida)
We present evidence that discretionary risk taking by financial institutions has declined following the passage of Dodd–Frank. The largest institutions experience the greatest reduction in risk consistent with the legislation’s objective of reducing systemic risk and an ultimate goal of ending the too-big-to-fail doctrine. Analysis of a sample of banks, the most highly regulated financial institutions, reveals that banks exhibiting characteristics consistent with riskier business strategies prio...
Published on May 1, 2016in Journal of Banking and Finance2.21
Robert De Young39
Estimated H-index: 39
(KU: University of Kansas),
Karen Y. Jang2
Estimated H-index: 2
(FIU: Florida International University)
We test whether and how U.S. commercial banks actively managed their liquidity positions between 1992 and 2012, prior to the implementation of the Basel III liquidity rules. On average, the data are consistent with a liquidity management regime in which banks targeted the traditional loans-to-core deposits (LTCD) ratio. Perhaps surprisingly, the data are also consistent on average with the net stable funding ratio (NSFR), a regulatory liquidity ratio that was not formally introduced by the Bank ...
Published on Jan 1, 2012in Journal of Banking and Finance2.21
Francisco Vazquezbenjamin M. Tabakmarcos7
Estimated H-index: 7
,
Pablo Mariano Federico2
Estimated H-index: 2
(BlackRock)
This paper analyzes the evolution of bank funding structures in the run up to the global financial crisis and studies the implications for financial stability, exploiting a bank-level dataset that covers about 11,000 banks in the U.S. and Europe during 2001–09. The results show that banks with weaker structural liquidity and higher leverage in the pre-crisis period were more likely to fail afterward. The likelihood of bank failure also increases with pre-crisis bank risk-taking. In the cross-sec...
Xuejie Chen1
Estimated H-index: 1
,
Asheber Abebe8
Estimated H-index: 8
+ 1 AuthorsJohn S. Jahera13
Estimated H-index: 13
The main purpose of this paper is to investigate macroeconomic variables that are predictive of banking crisis. We focus on selecting variables that have high predictive power to discriminate between two groups of countries: the sound and the distressed. We consider a sample of 50 emerging market and developing countries during 1990–2005 time period, and apply generalized estimating equations as well as univariate, bivariate and trivariate transvariation analysis to choose the variables that hav...
Parmendra Sharma7
Estimated H-index: 7
,
Neelesh Gounder7
Estimated H-index: 7
,
Dong Xiang2
Estimated H-index: 2
This study fills a huge gap in literature by providing some evidence on the level and determinants of bank efficiency in a Pacific island context. DEA results show that overall efficiency levels may be lower than in Australia, the home country of major banks. Dynamic GMM and panel data results show that personnel expenses and bank credit matter for efficiency, but not other bank-specific and macroeconomic factors. These insights substantially improve policy-making capacities for Fiji and other P...
Gandjar Mustika1
Estimated H-index: 1
(Bank Indonesia),
Enny Suryatinc1
Estimated H-index: 1
(Bank Indonesia)
+ 1 AuthorsRichard Simper14
Estimated H-index: 14
(University of Nottingham)
Bank lending in Indonesia slowed dramatically during the period 2006–2008 while, at the same time, the banks’ holdings of short-term public sector (and other riskless) securities increased substantially. For some, this provided clear evidence of a central bank-induced credit crunch arising from Bank Indonesia’s regulatory (with respect to risk-based capital and risk management requirements) and monetary policy tightening. This paper, based on Berger and Udell (Econ J 112: F32–F53, 1994) and Hase...
Published on Oct 1, 2013in Journal of Banking and Finance2.21
Leo de Haan16
Estimated H-index: 16
(De Nederlandsche Bank),
Jan Willem van den End13
Estimated H-index: 13
(De Nederlandsche Bank)
We investigate the liquidity management of 62 Dutch banks between January 2004 and March 2010, when these banks were subject to a liquidity regulation that is very similar to Basel III’s Liquidity Coverage Ratio (LCR). We find that most banks hold more liquid assets against their stock of liquid liabilities, such as demand deposits, than strictly required under the regulation. More solvent banks hold fewer liquid assets against their stock of liquid liabilities, suggesting an interaction between...
Published on Sep 1, 2013in Journal of Banking and Finance2.21
Isabelle Distinguin5
Estimated H-index: 5
(University of Limoges),
Caroline Roulet8
Estimated H-index: 8
(OECD: Organisation for Economic Co-operation and Development),
Amine Tarazi17
Estimated H-index: 17
(University of Limoges)
The theory of financial intermediation highlights various channels through which capital and liquidity are interrelated. Using a simultaneous equations framework, we investigate the relationship between bank regulatory capital and bank liquidity measured from on-balance sheet positions for European and U.S. publicly traded commercial banks. Previous research studying the determinants of bank capital buffer has neglected the role of liquidity. On the whole, we find that banks decrease their regul...
Published on Nov 26, 2012in World Bank Economic Review1.80
Asli Demirguc-Kunt94
Estimated H-index: 94
,
Harry Huizinga30
Estimated H-index: 30
Using bank-level data for 80 countries in the years 1988-9S, this article shows that differences in interest margins and bank profitability reflect a variety of determinants: bank characteristics, macroeconomic conditions, explicit and implicit bank taxation, deposit insurance regulation, overall financial structure, and underlying legal and institutional indicators. A larger ratio of bank assets to gross domestic product and a lower market concentration ratio lead to lower margins and profits, ...
Cited By13
Newest
Samuel Fosu (DMU: De Montfort University), Albert Danso6
Estimated H-index: 6
(DMU: De Montfort University)
+ -3 AuthorsEmmanuel Adegbite11
Estimated H-index: 11
(JCU: James Cook University)
Departing from the existing literature, which associates credit information sharing with improved access to credit in advanced economies, we examine whether credit information sharing can also reduce loan default rate for banks domiciled in developing countries. Using a large dataset covering 879 unique banks from 87 developing countries from every continent, over a 9-year period (i.e., over 6300 observations), we uncover three new findings. First, we find that credit information sharing reduces...
Published on Apr 2, 2019
Ahmad Sahyouni (DUFE: Dongbei University of Finance and Economics), Man Wang (DUFE: Dongbei University of Finance and Economics)
Purpose First, this paper aims to investigate the liquidity creation of conventional and Islamic banks in MENA between 2011 and 2016. Second, this work tests the relationship between the liquidity creation and performance of these banks. Design/methodology/approach It uses the data of 491 commercial banks across 18 MENA countries between 2011 and 2016. The analysis is based on panel data techniques. Findings The banks created US$5.281 trillion of liquidity, about 28.4 per cent of total assets. C...
Angelos Kanas (UniPi: University of Piraeus), Panagiotis D. Zervopoulos5
Estimated H-index: 5
(UOS: University of Sharjah)
This paper puts forward the proposition that U.S. commercial banks use dividends as a mechanism to shift systemic risk to debt-holders and the deposit insurer. Using a mixed data sampling modeling approach, it is shown that monthly systemic risk factors are associated with a positive effect on future quarterly bank dividends indicating systemic risk-shifting. These factors include absorption (Kritzman et al. in MIT working paper, 2010), catfin (Allen et al. in Rev Financ Stud 25:3000–3036, 2012)...
Published on Mar 4, 2019in Cogent economics & finance
Samuel Gameli Gadzo (UEW: University of Education, Winneba), Holy Kwabla Kportorgbi1
Estimated H-index: 1
(Ghana Institute of Management and Public Administration),
John Gartchie Gatsi3
Estimated H-index: 3
(University of Cape Coast)
AbstractIn recent years, financial institutions especially universal/commercial banks across Africa have been faced with forceful mergers and acquisitions. These occurrences impede the level of financial inclusion and reduces public confidence in the financial system as a whole. This study assessed the effect of credit and operational risk on the financial performance of universal banks in the context of the structural equation model (SEM). Data were collected from all the 24 universal banks in ...
Xiaoqian Zhu7
Estimated H-index: 7
(CAS: Chinese Academy of Sciences),
Jianping LiXiaolei19
Estimated H-index: 19
(CAS: Chinese Academy of Sciences),
Dengsheng Wu10
Estimated H-index: 10
(CAS: Chinese Academy of Sciences)
The Basel Committee on Banking Supervision (BCBS) states that in addition to the fact that it lacks simplicity, the Advanced Measurement Approach (AMA) must be discarded because the flexibility of ...
Published on Dec 1, 2018in Journal of Financial Stability2.30
S. Ben Naceur (IMF: International Monetary Fund), Katherin Marton8
Estimated H-index: 8
(Fordham University),
Caroline Roulet8
Estimated H-index: 8
(OECD: Organisation for Economic Co-operation and Development)
Using data on bank holding companies in the United States and Europe, this paper analyses the impact of capital and liquidity on bank-lending-growth following the 2008 financial crisis, and the new measures inspired by the Basel III regulatory framework. We find that U.S. banks reinforce their risk absorption capacities when expanding their credit activities. Capital ratios have significant, negative impacts on bank-retail-and-other-lending-growth for large European banks in the context of delev...
Maria-Eleni K. Agoraki4
Estimated H-index: 4
(OPA: Athens University of Economics and Business),
Georgios P. Kouretas14
Estimated H-index: 14
(OPA: Athens University of Economics and Business)
In this paper we examine the banking sector of the Central and Eastern European (CEE) countries during the transition period 1998–2016 in a number of critical dimensions. We place particular importance on the effect that the regulatory framework along with a group of bank-specific, industry-specific and macroeconomic factors have on the net interest margin (NIM) in the banking sectors of the Central and Eastern European countries over the period 1998–2016. In addition to the standard determinant...
Published on Jan 1, 2018in Neurocomputing4.07
Madjid Tavana30
Estimated H-index: 30
(La Salle University),
Amir-Reza Abtahi10
Estimated H-index: 10
(Kharazmi University)
+ 1 AuthorsMaryam Poortarigh1
Estimated H-index: 1
(Kharazmi University)
Abstract Liquidity risk represent a devastating financial threat to banks and may lead to irrecoverable consequences in case of underestimation or negligence. The optimal control of a phenomenon such as liquidity risk requires a precise measurement method. However, liquidity risk is complicated and providing a suitable definition for it constitutes a serious obstacle. In addition, the problem of defining the related determining factors and formulating an appropriate functional form to approximat...
Published on Oct 1, 2017in Journal of Economics and Business
Caroline Roulet8
Estimated H-index: 8
(OECD: Organisation for Economic Co-operation and Development)
Abstract Using data on commercial banks in Europe, this paper analyses the impact of the new Basel III capital and liquidity regulation on bank lending following the 2008 financial crisis. On the whole, capital ratios have significant and negative impacts on large European bank-retail-and-other-lending-growth in a context of deleveraging and “credit crunch” in Europe over the post-2008 financial crisis period. Additionally, liquidity indicators have positive but perverse effects on bank-lending-...
The objective of this study is to empirically examine the effect of unsystematic risks on the performance of commercial banks in Jordan, using panel data for the period of 10 years (2005-2015). The study uses earning per share and dividends as dependent variables to represent Banks’ performance. The empirical analysis based on the fixed effect model selected on the basis of Hausman test. The results indicate that the impact of Non-performing loans on commercial banks’ dividends is positive and s...