Do efficient banks create more liquidity: international evidence

Duan, Yuejiao; Fan, Xiaoyun; Li, Xinming; Rong, Yuhao; Shi, Benye

doi:10.1016/j.frl.2020.101919

Cited by 19 publications

(6 citation statements)

References 32 publications

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“…The implication of the bank liquidity creation to the economy, along with the novel framework developed by Berger and Bouwman (2009), has paved the way for more subsequent in-depth investigations into bank liquidity creation itself. Scholars have primarily focused on determinants of bank liquidity creation with bank-specific factors and macroeconomic conditions (Davydov et al, 2018;Duan et al, 2021;Horvath et al, 2016;Lei and Song, 2013;Tang et al, 2021;Toh, 2019;Toh et al, 2020;Tran, 2020;Yeddou and Pourroy, 2020). While our goals differ from theirs, but the prior findings are useful to suggest appropriate control variables in the current study.…”

Section: Literature Reviewmentioning

confidence: 95%

The bank liquidity creation channel of monetary policy transmission in a multiple-instrument environment

Dang¹

2022

IJMEF

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The study investigates the impact of monetary policy on bank liquidity creation, a much broader concept than bank lending. Using the annual financial data of Vietnamese commercial banks from 2008 to 2018, we show that an expansionary (contractionary) monetary policy tends to increase (decrease) bank liquidity creation. Our further analysis through monetary policy indicators ranging from lending rates to primary policy instruments, including policy rates and open market operations, provides strong evidence favouring the bank liquidity creation channel. Slightly differently, we do not have much confidence in the case of the foreign exchange reserves. Besides, we also confirm the existence of the bank lending channel, which differs from the bank liquidity creation channel in terms of the magnitude of transmission, from the perspective of a multiple monetary-policy-instrument environment.

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Section: Literature Reviewmentioning

confidence: 95%

The bank liquidity creation channel of monetary policy transmission in a multiple-instrument environment

Dang¹

2022

IJMEF

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“…association with profitability suggests that higher liquid asset holding lowers financing costs which outweigh the cost of returns (Tran et al, 2016). Finally, efficient banks are likely to exhibit better performance and able to absorb greater risk, entailing higher LC (Duan et al, 2021). Among others, higher concentration by raising charter values dissuades risk-taking and lowers LC, mainly on the asset side, consistent with Berger et al (2019).…”

Section: Bank Liquidity Creationmentioning

confidence: 97%

IFRS-9, expected loan loss provisioning and bank liquidity creation: early evidence

Ghosh

2024

ARJ

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Purpose The relevance of both microeconomic and macroeconomic factors in driving banks’ liquidity creation within a cross-country setup has been addressed in prior research. The purpose of this study is to explore whether and how the recent International Financial Reporting Standards-9 (IFRS-9) accounting standards affect this relationship. Design/methodology/approach The author exploits the staggered implementation of IFRS-9 across countries and use a difference-in-differences framework to tease out the causal impact. Findings The findings indicate that the enactment of IFRS-9 leads to an increase in asset-side liquidity creation and a decline of broadly similar magnitude in liability-side liquidity creation. As a result, total liquidity creation remains unaltered. Disaggregatedly, the evidence shows that all the key channels on the asset and liability side are instrumental in explaining this behaviour. Originality/value The author views this as one of the early studies in a cross-country setup to explore the interlinkage between IFRS-9 and bank liquidity creation. Since liquidity creation measure provides a comprehensive metric of liquidity supplied by banks to the market, the study seeks to inform the policy debate on the role of these recently instituted accounting standards on bank liquidity behaviour.

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“…This way more liquidity can be created. Previous studies on the effect of bank efficiency used the cost to gross total assets (Duan et al, 2021) and total factor productivity (Duan et al, 2021) measures.…”

Section: Literature Review and Hypothesesmentioning

confidence: 99%

The effect of banks’ cost efficiency and competition on liquidity creation

Viverita,

Nastiti Danarsari,

Bustaman

et al. 2024

Banks and Bank Systems

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This study examines the role of a bank’s cost efficiency and competition when creating liquidity. It also investigates the different abilities to create liquidity between conventional banks and Islamic banks. This study employs data from annual reports for 117 banks, including 103 conventional banks and 14 Islamic banks from the Association of Southeast Asian Nations 4 (ASEAN-4). Using the dynamic panel regression with the GMM system, this study finds that cost-efficient banks have a higher ability to create liquidity, while high banking competition deteriorates that ability. However, these effects decrease as banks manage their costs more efficiently. The findings imply that banks’ ability to create liquidity is impacted by their market power to win the competition. Additionally, this study found that Islamic banks create more liquidity than conventional banks. This phenomenon indicates that by being more focused on activities using on-balance sheet items, Islamic banks are spared from risky off-balance sheet commitments. Furthermore, efficient banks are more able to generate liquidity in competitive markets.

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Do efficient banks create more liquidity: international evidence

Cited by 19 publications

References 32 publications

The bank liquidity creation channel of monetary policy transmission in a multiple-instrument environment

The bank liquidity creation channel of monetary policy transmission in a multiple-instrument environment

IFRS-9, expected loan loss provisioning and bank liquidity creation: early evidence

The effect of banks’ cost efficiency and competition on liquidity creation

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