Effects of bank capital on liquidity creation and business diversification: Evidence from Malaysia

Toh, Moau Yong

doi:10.1016/j.asieco.2018.12.001

Cited by 39 publications

(27 citation statements)

References 57 publications

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“…Using US data, Berger and Bouwman (2009) found while bank capital impacts liquidity creation positively for large banks, there is a negative relationship for small banks. Whereas, several studies document a negative one-way relationship between capital and liquidity creation (Toh, 2019; Umar et al , 2017) or even a negative two-way relationship between them (Fu et al , 2015; Casu et al , 2019).…”

Section: Literature Reviewmentioning

confidence: 99%

The inter-relationships among liquidity creation, bank capital and credit risk: evidence from emerging Asia–Pacific economies

Le¹,

Pham

2021

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PurposeThis study investigates the inter-relationships among liquidity creation, bank capital and credit risk in selected emerging economies between 2012 and 2016.Design/methodology/approachA three-step procedure as proposed by Berger and Bouwman (2009) is used to measure liquidity creation. Thereafter, a simultaneous equations model with the generalized method of moments (GMM) estimator is used to examine the links between liquidity creation, bank capital and credit risk.FindingsThe findings indicate that bank capital and credit risk affect each other positively after controlling for liquidity creation. Also, the findings show a negative impact of credit risk on liquidity creation while our findings do not find any evidence to confirm the reverse relationship between them. Furthermore, the findings demonstrate a two-way negative relationship between liquidity creation and bank capital in these emerging economies. Finally, the results indicate a positive relationship between capital and credit risk, especially in the case of small banks in the sample.Practical implicationsThe findings suggest that the trade-off between the benefits of financial stability induced by tightening capital requirements and those of improved liquidity creation has crucial implications for policymakers and bank regulators in making the banking system more resilient. A positive impact of capital on credit risk emphasizes that the authorities in selected emerging economies should put more attention on small banks to ensure their exposures under target control.Originality/valueThis is the first study that examines the dynamic interrelationships among liquidity creation, bank capital and credit risk in the Asia–Pacific region.

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Section: Literature Reviewmentioning

confidence: 99%

The inter-relationships among liquidity creation, bank capital and credit risk: evidence from emerging Asia–Pacific economies

Le¹,

Pham

2021

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“…Nguyen et al [19] reported a positive and significant relationship between bank capital and income diversification among banks in ASEAN countries, in which the authors introduced bank capital as a control variable. In a similar view, Toh [20] also showed that an increase in bank capital has positive effect on both asset and revenue diversification.…”

Section: Bank Capital Requirement and Business Diversificationmentioning

confidence: 80%

Sector-Specific, Monetary Policy, and Macroeconomic Determinants of Business Dynamics: Evidence from Financial Services Industry in Malaysia

Hui¹,

Foong²

2021

Proceedings of the Ninth International Conference on Entrepreneurship and Business Management (ICEBM 2020)

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This paper examines the effects of sector-specific factors, macroeconomic factors, and monetary policy factors on business dynamic of Malaysian financial services industry. The study employed the whole public-listed financial services industry in Malaysia consisting of 10 public-listed banks, 9 insurance institutions, and 14 other financial institutions. In considering the crisis factor, four models have been developed for each sector: a) First and second models make distinctive comparison on the effect of financial crisis dummy variable during 2008-09, b) Third and fourth models investigate the dataset separately from the year 2000 to 2007, and from the year 2010 to 2019 respectively, particularly, pre-crisis period, and post-crisis period. This study found that there exists significant relationship among sector-specific factors, economic factors, and monetary policy factors, as well as business dynamics across banks, insurance, and other financial institutions industry. Nevertheless, by factoring in crisis factors, the impact seems to be mere significant across three industries which indicate that income activities will lead to bank and non-bank activities which is less fluctuated to systemic crisis.

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“…In addition, bank size also plays an important role in driving bank lending. According to the scale economies hypothesis, large banks are expected to expand lending more than small banks (Boyd & Runkle, 1993); however, if taking good advantage of comparative advantages such as better soft information, small banks might outperform their larger counterparts (Stein, 2002;Toh, 2019). Taken together, based on the arguments from literature, we control for the relevant bank-specific characteristics that could potentially affect bank lending, including bank size computed by the natural logarithm of bank assets, capitalization as calculated by the ratio of equity to total bank assets, and liquidity as measured by the ratio of liquid assets (cash and interbank deposits) to total bank assets.…”

Section: Other Variablesmentioning

confidence: 99%

Bank diversification and the effectiveness of monetary policy transmission: Evidence from the bank lending channel in Vietnam

Dang

2021

Cogent Economics & Finance

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The study empirically examines the impact of bank diversification on monetary policy transmission through the bank lending channel. Based on monetary and bank-level data from 2008 to 2018 in Vietnam, a diverse environment of monetary policy tools, results show that bank diversification significantly drives the bank lending channel in different ways. Using the changes in lending rates and policy rates as monetary policy indicators, the study posits strong evidence to indicate that the transmission of the bank lending channel becomes weaker as banks get more involved in non-traditional activities. In contrast, we observe that bank diversification promotes the effectiveness of monetary policy transmission by the intervention of foreign exchange reserves, with no clear-cut link in the case of open market operations. Further analysis indicates the weakening effect is almost confirmed in all bank groups, while the strengthening effect works only for banks with large capital buffers. In brief, the results suggest that monetary authorities should be vigilant when they are strongly encouraging bank diversification. Besides, they also need to choose the appropriate monetary tools to apply and establish specific policies for different groups of banks.

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Effects of bank capital on liquidity creation and business diversification: Evidence from Malaysia

Cited by 39 publications

References 57 publications

The inter-relationships among liquidity creation, bank capital and credit risk: evidence from emerging Asia–Pacific economies

The inter-relationships among liquidity creation, bank capital and credit risk: evidence from emerging Asia–Pacific economies

Sector-Specific, Monetary Policy, and Macroeconomic Determinants of Business Dynamics: Evidence from Financial Services Industry in Malaysia

Bank diversification and the effectiveness of monetary policy transmission: Evidence from the bank lending channel in Vietnam

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