Abstract
How does credit from the financial sector and claims on the central government affect banking sector liquidity and financial stability risks? This paper constructs an algorithm, which investigates the impact of domestic credit from the financial sector, bank to capital assets ratio, claims on the central government on banking sector liquidity – a proxy for financial stability. The results show a positive and statistically significant impact of the capital assets ratio on the bank's liquidity of 3.1%. It equally finds that domestic credit and claims on central government hurt bank liquidity, notably of -0.15% and -2.5%, respectively. The study recommends that commercial banks invest in higher-value domestic projects to improve their profitability over the long-run, thereby boosting financial stability. Furthermore, the central bank should make additional liquidity for banks contingent on the amount of credit they provide to the real economy.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
More From: Business & Management Studies: An International Journal
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.