Abstract
The aim of this paper is to find out determinants which affect liquid asset ratio of Czech and Slovak commercial banks. The data cover the period from 2001 to 2010. We consider four bank specific factors and nine macroeconomic factors. Results of panel data regression analysis showed that although Czech Republic and Slovak Republic have a lot in common, different factors determined banks´ liquid assets in individual countries. The liquid asset ratio of Czech banks increases with increase of capital adequacy, with depreciation of Czech koruna and with worsening quality of credit portfolio. Liquidity of Slovak banks decreases with size of the bank, with higher capital adequacy, higher bank liquidity and during periods of financial crisis. Liquidity of Slovak banks is also positively related to economic cycle.
Highlights
IntroductionFinancial sector has gone through a dramatic re-appraisal of the liquidity risk
During global financial crisis, financial sector has gone through a dramatic re-appraisal of the liquidity risk
Most studies assumed the negative link between business cycle and bank liquidity, the results show that the approach of Moore (2010) can be applied on Slovak banking sector
Summary
Financial sector has gone through a dramatic re-appraisal of the liquidity risk. As a result of a continued drop in the market value of mortgage-backed securities from the subprime segment of the US market and the announcement of problems of some European banks, the interbank market came under extreme strain. This confidence crisis had the following consequences: (i) Amidst increased market nervousness, interbank interest rates sharply rose. (ii) Many segments of the structured credit and mortgage market ceased to trade at all, making it difficult to price outstanding positions. Financial Assets and Investing injected billions in overnight credit into the interbank market. Some banks needed extra liquidity supports (Orlowski, 2008). A number of banks failed, were forced into mergers or required resolution (BIS, 2009)
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