Models of Accounting Disclosure by Banking Institutions

This study aims to investigate the impact of banking-sector concentration on the banks’ liquidity creation in GCC countries over the period from 2012 to 2018 by using a dynamic GMM panel procedure. The results suggest that increased bank competition reduces banks’ liquidity creation across the GCC countries. The study’s findings are in line with the ‘financial fragility hypothesis” according to which banks to reduce their lending activities when competition is high in the market. The evidence suggests that the banking industry is different from others, and pro-competitive policies in the banking industry can reduce liquidity provision by banks. In the context of policy implications, a concentrated banking system discourages capital provision to firms; hence, regulators have to take appropriate measures to resolve the problem of a reduced supply of capital. Government must regulate the banking sector by keeping in view their long-run goal as competition is a double-edged sword in banking.

Liquidity creation cyclicality, capital regulation and interbank credit: Evidence from Chinese commercial banks

Problems related to banking in Indonesia today is the problem of liquidity. It is shownfrom a commercial bank credit grew 23.03% but not matched by growth in depositswhich only reached 16.56% in 2012 (Report of Banking Supervision, 2012). Therefore,this study aims to determine the liquidity creation in Indonesia as well as to analyze theinfluence of bank capital, credit risk and income instability towards liquidity creation.The samples includes 10 major banks in Indonesia with total assets of more thanRp120billion in 2013. The reason for choosing this sample because of the 10 largestbanks reflects the state of the banks in Indonesia which accounted for 65.2% of totalassets, 65.6% of total loans, and 66% of total deposits or deposits in the banking industry(PEFINDO, 2014). The results of this research note that the bank's capital and earningsvolatility is significant negative effect on liquidity creation. While the credit risk of anegative but insignificant effect on liquidity creation. In the determination coefficient testshowed that 43.6% dependent variable is the liquidity creation can be explained by theindependent variable is the capital of banks, credit risk and earnings volatility. While56.4% is explained by other variables outside the model of this study.Keywords: liquidity creation, capital of banks, credit risk, third-party funds, banks inIndonesia.

The Covid-19 pandemic has affected many aspects beyond the health sector. The pandemic has also changed the economy in various ways. For example, a decline in economic growth in various countries is predicted to trigger a global crisis. Social distancing and partial lock-down policies also significantly suppress economic activity and domestic consumption, resulting in economic contraction. In addition, partial lock-down policies, social distancing policies, and uncertainty regarding the future economic conditions have increased the risk of vulnerability in the banking industry, particularly in terms of lending and liquidity creation in the banking sector.The Indonesian government provides several incentives such as assistance with a social safety net and economic incentives to increase public consumption and government spending. Thus, it is hoped that there will be money movement and additional funding and lending activities in the banking system and reinforce liquidity creation. Keywords: Liquidity Creation, Islamic Bank, Conventional Bank, Covid-19 Pandemic

Purpose The purpose of this paper is to investigate the interrelationship between liquidity creation (LC) and bank capital in Vietnamese banking between 2007 and 2015. Design/methodology/approach A three-step procedure is used to measure LC. Thereafter, a simultaneous equations model with a three-stage least squares estimator is employed to examine the links between LC and bank capital. Findings The findings show that large banks mainly contributed a strong growth in LC in Vietnam between 2007 and 2015. The findings also indicate that off-balance sheet activities only played a small role in LC. In addition, the findings indicate a negative two-way relationship between LC and bank capital in Vietnam. The results of the robust checks reinforce the main findings. Practical implications The evidence shows that the implementation of Basel III may reduce LC and greater LC may increase banks’ insolvency. Consequently, this trade-off between the benefits of financial stability induced by tightening capital requirements and those of enhanced LC has important implications for Vietnamese authorities in strengthening the banking system. Originality/value This study is the first attempt to investigate the interrelationship between LC and bank capital in Vietnam, in which fat liquidity creation and non-fat liquidity creation are used and alternative measures of LC are also employed to provide robustness to the main findings.

This paper evaluates the effect of bank competition on liquidity creation by banks. Thus, we contribute to the literature on both bank competition and the determinants of liquidity creation by banks. To explore this relationship, we conduct dynamic GMM panel estimations on a dataset of Czech banks from 2002 to 2010. We find that enhanced competition reduces liquidity creation, a finding we observe under different specifications, including alternative measures of liquidity creation. We explain this finding in terms of the impact of increased bank competition on the financial fragility of banks, which leads banks to reduce their lending and deposit activities. The evidence suggests that pro-competitive policies in the banking industry can reduce liquidity provision by banks. JEL Codes: G21. Keywords: bank competition, liquidity creation.

Recent academic research shows that banks with a high amount of deposits are inclined toward creating more liquidity and taking more risk. However, little is known about the puzzle of liquidity creation and how it is influenced by the cost of funding. This article aims to study the impact of the cost of funding on liquidity creation in the U.S. banking industry. Using comprehensive quarterly data for the period 2001 to 2019, we find that the cost of funding negatively relates to the bank’s ability to create liquidity and the bank creates less liquidity and takes less risk when the cost of funding is high. Moreover, we show that large and public banks are more responsive to depositors’ behaviour, arising from changes in the cost of deposits. Our results are robust to alternative econometric approaches including addressing the endogeneity concerns, the measure of funding cost and liquidity creation, bank size and different crisis periods.

How bank competition influences liquidity creation

The COVID-19 pandemic has affected peoples’ lives in many ways, including their health, income, and economic condition. One of the most affected sectors is the banking industry, which is facing difficulty in liquidity creation. This research attempts to analyze the ability of Indonesian commercial banks, both conventional and Syariah banks, to create liquidity pre and during the pandemic. The researchers employed a descriptive data analysis to investigate the pattern of liquidity creation in the Indonesian banking sector using monthly data from December 2018 to August 2020. Since these banks operate under different banking principles, they respond to the pandemic differently. The researchers found an interesting fact that the liquidity per rupiah asset created by the Syariah banks outperformed the conventional banks pre- and during the pandemic. This finding implies that the Syariah banks have a considerable potential to expand their operation in the Muslim majority such as Indonesia.
 Keywords: liquidity creation, Indonesian banks, COVID-19

Liquidity creation through efficient M&As: A viable solution for vulnerable banking systems? Evidence from a stress test under a panel VAR methodology

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.

Objective – The highly concentrated ownership structure, lack of quality information, and weak regulatory environments caused imbalances in the movement of cash flows and thereby put the liquidity levels of Gulf Cooperation Council (GCC) banks on a downward trend. This prompted policymakers in the GCC region to modify their Corporate Governance (C.G.) codes to boost the financial position of the GCC banking industry as liquidity providers and minimize systemic risk. Therefore, the purpose of this study is to conceptually investigate the relationship between board governance attributes and liquidity creation in the GCC banking sector. Methodology – The methodology employed in this study is a review of prior research on bank governance mechanisms and liquidity creation to gather perspective and establish a prediction about the association between board attributes and liquidity creation in the GCC banking industry. Findings – The study concludes that there is a positive correlation between the analyzed board governance features and the creation of liquidity based on several theories gleaned from a review of prior research. Novelty – The study evaluates bank liquidity creation and how board attributes influence it. Type of Paper: Review JEL Classification: M41, M49. Keywords: Liquidity Creation, Corporate Governance, Agency Theory, Board Attributes, GCC. Reference to this paper should be made as follows: Mousa, A.K.A; Hassan, N.L; Pirzada, K. (2022). Board Governance Mechanisms and Liquidity Creation: A Theoretical Framework, J. Fin. Bank. Review, 7(2), 122 – 134. https://doi.org/10.35609/jfbr.2022.7.2(3) _______________________________________________________________________________________

Both real and monetary shocks have been extensively researched, with conflicting findings on the involvement of the banking sector following the occurrence of these shocks. Nonetheless, liquidity creation (LC) appears to be one of the most underappreciated banking operations. This research analyses the impact of LC on economic volatility and the mechanisms through which LC influences volatility in 10 MENA countries from 2000 to 2019. Using a recently published panel cointegration estimating approach, we show that LC does influence growth volatility over the long term and short term—in other words, LC, as a primary activity of banks, helps to reduce volatility. According to PMG’s findings, both real and monetary shocks significantly increase volatility in the short term compared to their influence in the long term. The channels of expression show that LC mitigates the influence of real shocks (amplifies the effect of monetary shocks) on growth volatility, and there is a greater magnitude of this effect in the short term. Strengthening the banking industry through LC, which is their primary business, could be a critical strategy in avoiding economic swings.

Using both GMM estimation and Bayesian approaches during the period from 2007 to 2021 to examine the impacts of liquidity creation (LC) on bank stability (BS) in a sample of 53 banks across five Southeast Asian countries (ASEAN-5), the author has become a pioneer in conducting the first empirical study applying these two approaches, which provides a broader perspective on the effects of liquidity creation on bank stability. Utilizing CatFat and CatNonFat indexes, the author follows the method of Berger and Bouwman [1] to represent the ability to create liquidity based on a sample of 794 observations from banks in Indonesia, Malaysia, the Philippines, Vietnam, and Thailand. The positive impacts of LC on financial stability revealed by both approaches have contributed important management implications to the banking industry in ASEAN-5 in particular and to emerging and developing economies in general. The research also enriches the literature on the relationship between LC and BS. Not only new empirical insights but also the complex nature of the correlation between bank stability (a critical feature of the banking system) and liquidity creation (a fundamental function) have been revealed. Additionally, the author has identified factors affecting BS in the research sample, which is critically important for the supervision and management of the banking industry in ASEAN. By analyzing the impact of liquidity creation on banks’ stability, the author hopes to contribute important implications for banking supervision and management activities in ASEAN, especially in emerging and developing economies.

Purpose The purpose of this paper is to examine the effect of bank capital on liquidity creation. Especially, the authors test two competing hypotheses: the “risk absorption” hypothesis and the “financial fragility-crowding out” hypothesis that describe such association in the context of UK and French banking industry. Design/methodology/approach The authors use data collected from Bankscope for commercial banks pertaining to the aforementioned countries. The sample period ranges from 2000 to 2014. Liquidity creation was measured using a novel approach proposed by Berger and Bouwman (2007). This study uses the quantile regression (QR) and the instrumental variables QR, along with classical ordinary least squares (OLS) and panel regression, to deal with the mixed results reported by previous papers. Findings Using OLS and panel regression, the authors first find that bank capital negatively affects liquidity creation which supports risk absorption hypothesis. Second, the result from QR confirms the negative association between the aforementioned variables and shows that the effect is homogenous across quantiles of liquidity creation distribution. The result remains unchanged when using the QR with instrumental variables to address the potential problem of endogeneity. Originality/value This paper sheds more lights on the relationship between bank capital and liquidity creation by using a novel estimation approach based on the QR methodology.