Bank liquidity creation: A new global dataset for developing and emerging countries (original) (raw)
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Journal of Central Banking Theory and Practice
This study measures liquidity creation within a sample of 153 banks operating in 12 Middle Eastern and North African (MENA) countries from 2008 to 2017. We found that these banks created a total of $461.32 billion in liquidity in 2017, approximately 1.51 times the total liquidity created in 2008, mainly driven by commercial banks in Gulf Cooperation Council (GCC) countries. We also conducted an econometric analysis to investigate the internal and external factors affecting bank liquidity creation, applying a Fixed Effects model and the new Method of Moments Quantile Regression (MMQR). The results show that, among bank-specific factors, bank liquidity creation in MENA countries is related to capital, size, bank risk, deposits and profitability whilst market concentration does not appear to play a significant role. Regarding macroeconomic factors, inflation, unemployment, savings and monetary policy explain the variations in bank liquidity creation.
Estimation of liquidity created by banks in India
2019
Risk transformation and liquidity creation are the two key functions of a bank. Liquidity Creation plays a very important role in the economy, but there is no comprehensive measure of liquidity creation that exists in our country. This study estimates the notional value of liquidity created by Scheduled commercial banks in India during the period 2005 to 2018. We have developed four measures of liquidity creation by Indian Banks,following Berger and Bouwman (2009). We have estimated Liquidity created by Banks in India is Rs.41524096 million in FY 17-18, which is 27.2 percent of total assets of all Scheduled Commercial Banks (excluding Regional Rural Banks),as per broad measure. We found off-balance sheet activities play a significant role in liquidity creation, 25 percent of the total liquidity creation as per broad measure is found to be determined by the off-balance sheet activities. Recently, there have been discussions to privatize the nationalized banks, but our study found tha...
Global Liquidity Determinants Across Emerging and Advanced Countries
Journal of Banking and Financial Economics, 2015
The paper explores the concept of global liquidity and its determinants, focusing on the banking system in advanced and emerging markets. We explore the implications of the interaction between liquidity and its local, global and financial markets determinants. We also analyze the global liquidity channels, i.e. whether foreign banks play a significant role in the country's financial system. The study focuses on the investigation of banks' liquidity determinants in 42 countries (advanced and emerging/developing countries) over the 2000-2011 period. The results show the significance of the differences in global liquidity depending on the country's level of development. We find support to the conjecture that globalization and global banks' leverage may convey some useful information on global liquidity. We also present an important observation that banks' lending in advanced countries is shielded from the monetary policy because of their ability to freely access alternative sources of funds.
Liquidity Dynamics of Banks in Emerging Market Economies
Journal of Central Banking Theory and Practice, 2022
This study examines the liquidity dynamics of banks in emerging market economies. Using annual data of 91 commercial banks from 11 countries, the study established that banks in emerging markets have target liquidity ratios they pursue and partially adjust due to market frictions. Overall, risk aversion and prudence play a significant role in explaining the liquidity dynamics by banks in emerging market economies.
Liquidity creation and bank performance: evidence from MENA
ISRA International Journal of Islamic Finance, 2019
Purpose-Islamic banks have significantly different balance sheets from their conventional counterparts, leading to different implications in relation to liquidity creation compared to conventional banks. This work, first, investigates the liquidity creation of conventional and Islamic banks in Middle Eastern and North African (MENA) countries between 2011 and 2016. It then tests the relationship between 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$18.596 trillion of liquidity, about 28.4% of total assets. Conventional banks created more liquidity compared with Islamic banks. Nevertheless, Islamic banks created more liquidity per asset compared with conventional banks. The regression analysis revealed a significant and negative correlation between liquidity creation and performance of the banks using return on average equity (ROAE) measure. However, no significant relationship is observed between liquidity creation and return on average assets (ROAA) of MENA banks. Moreover, there is no difference between Islamic and conventional banks in the relation between liquidity creation and bank performance. Research limitations/implications-The data are limited to the period 2011-2016; the period of this study was selected based on yearly data availability from the data source. Accounting measures were used to study the effect of liquidity creation on bank profitability, and the market-based measures were excluded, as there is no uniform sources in these countries that can be used to collect market-based data. Practical implications-Bank managers must reach a trade-off between the advantages and disadvantages of liquidity creation, as well as consider the negative relationship between liquidity creation and bank performance when making their decisions. Originality/value-First, to the best of the authors' knowledge, this work is the first to analyse the relationship between the liquidity creation and performance of conventional and Islamic banks in MENA. Second, this study uses a sample of Islamic and conventional banks in MENA that have detailed information on the Orbis Bank Focus dataset, which is the most comprehensive database of commercial banks in the MENA region.
The Determinants of Banks' Liquidity Buffers in Central America
IMF Working Papers, 2012
Banks' liquidity holdings are comfortably above legal or prudential requirements in most Central American countries. While good for financial stability, high systemic liquidity may nonetheless hinder monetary policy transmission and financial markets development. Using a panel of about 100 commercial banks from the region, we find that the demand for precautionary liquidity buffers is associated with measures of bank size, profitability, capitalization, and financial development. Deposit dollarization is also associated with higher liquidity, reinforcing the monetary policy and market development challenges in highly dollarized economies. Improvements in supervision and measures to promote dedollarization, including developing local currency capital markets, would help enhance financial systems' efficiency and promote intermediation in the region.
Liquidity regulations and bank behavior: An emerging markets perspective
Journal of Governance and Regulation
The 2007 to 2009 global financial crisis significantly affected the funding structures of banks, especially internationally active ones (Gambacorta, Schiaffi, & Van Rixtel, 2017). This paper examines the impact of liquidity regulations, in particular, the liquidity coverage ratio (LCR), on funding structures of commercial banks operating in emerging markets over the period 2011 to 2016. Similar to Behn, Daminato, and Salleo (2019) who developed a dynamic partial equilibrium model to examine capital and liquidity adjustments, this paper develops three dynamic error component adjustment models and estimates them using the two-step system generalized method of moments (GMM) estimator to analyze funding adjustments adopted by banks in emerging markets in response to the LCR requirement. The results revealed that banks in emerging markets responded to binding liquidity regulations by increasing deposit, equity as well as long-term funding. In terms of the magnitude of response, deposit f...
Mozambican Commercial Bank Liquidity and its Determinants
EUREKA:, 2023
Despite the Central Bank of Mozambique’s best efforts to assist commercial banks through a range of policies and regulations, the majority of these banks have been unable to satisfy their liquidity obligations on time, resulting in unacceptably large losses that have forced mergers or necessary resolutions. Thus, the purpose of this study was to determine the factors that affect Mozambican commercial banks’ liquidity using bank-specific and macroeconomic data from 2013 to 2022. Data was analysed using unbalanced panel regression analysis (PRA). Specific bank data were gathered from a sample of eight commercial banks, which control 95 % of the market share in the banking system bank’s annual report, which was accessible on their websites, while macroeconomic data were gathered from World Bank reports and Central Bank of Mozambique’s reports from 2013 to 2022 (10 years). Financial state¬ments from the commercial banks were used for all statistical calculations for the years 2013–2022. The research findings show that bank liquidity was significantly and positively impacted by the GDP, inflation, loan interest rates, amount of non-performing loans, capital adequacy, and bank profitability. There was no statistically significant variation in bank size when it came to the decrease in liquidity. According to the report, Mozambican commercial banks should be more focused on deposit mobilization to preserve a healthy liquidity buffer and enhance liquidity performance. Therefore, by presenting results on the current liquidity position and the macroeconomic and bank-specific factors influencing the liquidity of commercial banks in Mozambique, this study hopes to add to the body of current literature. The research study suggests strengthening the fiscal and monetary policies to improve bank liquidity control and monitoring systems in compliance with Basel III regulations.
The Economics and Finance Letters
Liquidity is critically significant for the banks and banking system components. This study investigates the macroeconomic determinants along with bank-specific determinants of Indian banks. This study considered 50 banks for analysis from 2008 onwards. The result was drawn by employing the generalized method of moments. More precisely, the findings of this study indicate that liquid assets to total assets revealed a substantial relationship with bank determinants of deposits, capital, bank size, and net interest margin. The liquid assets to total assets was also found to have a significant association with macroeconomic determinants of interest rate, weighted average call rate, and gross domestic product. In the case of loans to total assets, bank-specific variables of asset management and net interest margin have a significant relationship, while for macroeconomic variables, only the interest rate has a significant association with bank liquidity. The other independent variables s...
The Impact of Macroeconomic Factors on Banks’ Liquidity from 2008 to 2020
International Journal of Applied Economics, Finance and Accounting
Liquidity is fundamental to the well-being of financial institutions, particularly banks. It determines the growth and development of banks as it ensures the proper functioning of financial markets. This research aims to examine the impact of macroeconomic variables (GDP per capita, inflation rate, and unemployment rate) on banking liquidity in the 28 European Union member countries, Turkey, and Switzerland from 2008 to 2020. The study relied on secondary data from the databases of international organizations, including the World Bank and Eurostat, to compile its sample of 390 observations. Since the research spans numerous states over 13 years, panel data are used, which are estimated using a simple linear regression model using the least squares method. According to the regression findings, GDP per capita and the unemployment rate positively affect bank liquidity, whereas the inflation rate has a negative effect on bank liquidity. Also, the regression analysis did not find any sta...