Abstract
For about fifteen years, the banking system of the West African Economic and Monetary Union (WAEMU) has been characterized by excess liquidity. In this paper, we analyze the explaining factors of excess liquidity by considering regulations as key variables and a dynamic Panel Model is used on aggregate banking data covering the period from 1990 to 2013 for the methodology. Results show the following explaining factors: government’s deposits, credit granted to public companies and to central administration, the entry into force of the single agreement act, the act on financial relationships with foreign countries, and on the suppression of usurious transactions and interest rates, the obligation to publish the whole effective rate and the redefinition of new minima caps in terms of share capital.
Highlights
In the 1980s, the banking system of the West African Economic and Monetary Union (WAEMU) was marked by an acute financial crisis with the disappearance of nearly a quarter of the number of banks
One of the reforms concerns the restructuring of banking institutions, and the enhancement of the bank supervision with the creation of the supranational supervision institution: the West African Monetary Union (WAMU) Banking Commission
Considering our objective to explain the phenomenon of excess bank liquidity from banking and financial reforms, we should have started our study in the late 1970s when the restructuring of the banking system really began
Summary
In the 1980s, the banking system of the West African Economic and Monetary Union (WAEMU) was marked by an acute financial crisis with the disappearance of nearly a quarter of the number of banks. Reforms have been initiated to restore the liquidity of banks being stricken by the crisis. One of the reforms concerns the restructuring of banking institutions, and the enhancement of the bank supervision with the creation of the supranational supervision institution: the West African Monetary Union (WAMU) Banking Commission. These major changes have shaken up the banking system of the region with liquidity ratios exceeding the standard of 75%. If reforms have improved the banks’ solvency and liquidity, they have caused the appearing of excess bank liquidity
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