Bank Liquidity Research Articles

Mozambican commercial bank liquidity and its determinants

Despite the Central Bank of Mozambique's best efforts to assist commercial banks through a range of policies and regulations, the majority of these banks have been unable to satisfy their liquidity obligations on time, resulting in unacceptably large losses that have forced mergers or necessary resolutions. Thus, the purpose of this study was to determine the factors that affect Mozambican commercial banks' liquidity using bank-specific and macroeconomic data from 2013 to 2022. Data was analysed using unbalanced panel regression analysis (PRA). Specific bank data were gathered from a sample of eight commercial banks, which control 95 % of the market share in the banking system bank's annual report, which was accessible on their websites, while macroeconomic data were gathered from World Bank reports and Central Bank of Mozambique’s reports from 2013 to 2022 (10 years). Financial statements from the commercial banks were used for all statistical calculations for the years 2013 – 2022. The research findings show that bank liquidity was significantly and positively impacted by the GDP, inflation, loan interest rates, amount of non-performing loans, capital adequacy, and bank profitability. There was no statistically significant variation in bank size when it came to the decrease in liquidity. According to the report, Mozambican commercial banks should be more focused on deposit mobilization to preserve a healthy liquidity buffer and enhance liquidity performance. Therefore, by presenting results on the current liquidity position and the macroeconomic and bank-specific factors influencing the liquidity of commercial banks in Mozambique, this study hopes to add to the body of current literature. The research study suggests strengthening the fiscal and monetary policies to improve bank liquidity control and monitoring systems in compliance with Basel III regulations.

The monetary policy pass-through mechanism: Is the search-for-yield incentive at work?

The paper investigates the possible mechanism behind the link between monetary policy and bank lending/risk-taking behaviors. Using a sample of Vietnamese commercial banks during 2007–2019, we find that the impact on bank output associated with monetary policy shocks is attributable to banks’ incentives to search for yield. Concretely, if interest rates remain lower amid monetary expansions, banks are likely to expand their lending activities more aggressively and take more risks to offset their reduced revenues. Moreover, this crucial supply-side effect is also at work for the bank liquidity creation channel of monetary policy transmission. Accordingly, we document that demotivated banks appear to undermine the impact of monetary policy on the core function of banks in creating liquidity to the real economy. Our finding is robust against a series of alternative monetary policy indicators, different bank output measures, multiple search-for-yield proxies, and substitute econometric methodologies. In sum, as the monetary policy pass-through transmission through the key banking channels is found due to banks’ own decisions, monetary authorities need to take this underlying mechanism into account when setting their monetary policy.

Investment externalities, bank liquidity creation, and bank failures

Recent evidence suggests that banks are interconnected through investment externalities among their borrowers. We study how such investment externalities affect the ability of unregulated, competitive banks to facilitate risk sharing among bank depositors, adapting a canonical model of banks as creators of liquidity subject to fundamental risks to bank returns. Failures occur when banks become insolvent. We find that investment externalities render fundamental risks to bank returns endogenous, risk sharing among depositors inefficient, probabilities of bank failures too high, and payouts to depositors in the event of a bank failure too low. These effects arise because productivity is too low in the presence of investment externalities. Minimum liquidity standards and bank bailouts dampen productivity further.

THE IMPACT OF SFAS166/167 ON BANK LIQUIDITY AND LENDING

This study examines whether, and to what extent, SFAS166/167 changed the role of securitization in bank liquidity and lending activities. We compare the sensitivity of on-balance sheet loan growth to the loan portfolio liquidity index proposed by Loutskina [( 2011 ) The role of securitization in bank liquidity and funding management, Journal of Financial Economics 100, 663–684] between affected banks and control banks. We find that SFAS166/167 is significantly associated with a reduction in the use of securitization to enhance on-balance sheet liquidity, consistent with the view that consolidation on balance sheets may render the securitization of loans too costly to be considered an effective source of liquidity. In addition, we find that affected banks with the highest increase in liabilities from consolidating Qualified Special Purpose Entities (QSPEs) experienced a significant decrease in lending activities relative to the control banks. This is likely because consolidating former QSPEs may adversely affect the ability and willingness of banks to engage in securitization and issue new loans. Taken together, our results suggest that SFAS166/167, requiring the consolidation of former QSPEs, led to a decline in the role of securitization as a liquidity management tool in banks and to a significant decline in lending.

Government guarantees and bank liquidity creation around the world

Governments provide bank guarantees, such as deposit insurance. While risk effects are well researched, impacts on bank output remain largely unexplored. We investigate bank output effects using data from 75 countries/regions on bank liquidity creation, a comprehensive bank output measure. We address reverse causality, examining home-country guarantee effects on liquidity creation by subsidiary banks in foreign host nations, and mitigate omitted-variables concerns with host country × year fixed effects and home country controls. Findings suggest home-country guarantees decrease subsidiary bank liquidity creation up to 10%, and hold prior to, during, and after the Global Financial Crisis.

Non-linear Panel Data Liquidity Model of Islamic and Conventional Banks

Banks and liquidity risk are synonymous with each other due to inevitable asset-liability mismatches derived from deposit and lending activities. The study aims to investigate this issue by highlighting a new insight into the non-linear function between profitability and liquidity risk. With the aspiration to include both Islamic and conventional banks from nine Asia-Pacific countries, this study involves the unbalanced panel data of a 10-year period that covers from 2011 to 2020. The final sample ends with 285 banks and 2,116 observations. The study employs a quadratic random effect model with clusters adjusted errors comprised of five interest predictors namely profitability, credit risk, bank capital, income diversification and bank size. The findings discover profitability, bank capital, income diversification, size and economic condition play vital roles in managing banks liquidity. The findings reveal the existence of moral hazard for larger and highly capitalized banks with greater exposure to liquidity risk. High-margin banks are also prone to maintain lower liquidity levels, thus exposed to greater risk. Banks are advocated to elevate higher earnings and maintain adequate levels of capital and assets with the caution of moral hazard issues. Therefore, the regulatory body in each country is proposed to intervene and monitor especially the higher margin banks to lessen the moral hazard issue.

Impact of Bank Liquidity and Macroeconomic Determinants on Profitability of Commercial Banks in Bangladesh

This paper aims at investigating the relationship between profitability and liquidity of the State-Owned Commercial Banks of Bangladesh. An important motive of this study is to provide valuable insights into how liquidity influences profitability. There are various research papers on liquidity exposure and the profitability relationship of banks in Bangladesh. But those researches are separately conducted for conventional or Islamic banks or there is a comparative analysis of both banks. But there is little research on the state-owned banking industry. During the Pandemic the banking industry of Bangladesh was affected severely in respect of liquidity risk and it also affected its profitability. There is no recent paper focused on this study. So, this study will try to identify the significant factors that affect the liquidity of a bank and its profitability. In this regard, 10 years’ data from Annual Report of the State-Owned Commercial Banks and macroeconomic data from Bangladesh Bank website and several journals have been collected from 2012-2021. This study primarily aims at exploring the liquidity-profitability relationship using econometric model. Loan to Deposit ratio is used measuring liquidity of a bank. Other control variables Loan Loss Provision to Total Asset (LLPTA) for credit risk, Equity to Total Asset (EQTA) for capital efficiency, Operational expense to Total Asset (OPEXTA) for operational efficiency, Total Asset (TA) for Bank size, Non-performing Loan (NPL) for asset quality, Gross Domestic Product (GDP) for economy size, Inflation (INF) for consumer price index, Interest Rate (INT) for opportunity cost, and the Unemployment rate for measuring labor force. The major finding of this study show that there is a significant positive relationship between liquidity risk and profitability. Among bank-specific variables credit risk, capital efficiency, and bank size have a significant relationship with Profitability which also supports the theory. Macroeconomic variables like interest rate, inflation rate, and GDP have a significant relationship with profitability which also supports the theory. Here BDBL and BASIC should have maintained the liquidity standard mentioned by Bangladesh Bank and BIS to mitigate their liquidity crisis. This study also shows that there is no severe effect of the COVID pandemic on the State-Owned Commercial Banks of Bangladesh. The findings of this study will provide valuable insights for banks and regulators to make informed decisions regarding risk management, liquidity decision, capital allocation, and strategic planning.

Federal Funds Rate Spillover Effect On Emerging Market Banking Liquidity And Capital – Evidence From Indonesia

This paper examines the spillover effect of the fed fund rate (FFR) on emerging banking liquidity and capital in emerging markets, especially in Indonesia, using the Structural Equation Model (SEM). Data were collected from the Indonesia Central Bank and Financial Services Authority. Our model reveals a significant indirect negative relationship between FFR, banking liquidity, and capital. This relationship was examined both directly and indirectly using the model. While the FFR influence was robust, the impact on liquidity and capital was translated through the local bank rates. It is found that rising interest rates would still result in tighter liquidity to some extent. FFR also impacts capital decisions because the rising interest rate might incentivize managers to borrow from a lower market environment. Thus, observing the indirect relationship, the impact of the FFR depends on the local central bank monetary policy transmission to mitigate the spillover effect resulting from developed economy monetary policy.

The role of investor sentiment in bank liquidity creation

Using a comprehensive, forward-looking estimate of investor sentiment based on equity, option, and fixed income markets, we find that investor sentiment is positively related to bank liquidity creation, LC. As investors become more optimistic, both asset-based and off-balance sheet LC rise while liability-based LC decreases, which results in a net increase in LC. The effect is seen in large banks’ LC, while the impact on small banks’ LC is weaker. A channel analysis finds increases in sentiment and bank LC coincide with greater lending that is financed by liquidating cash and securities, as well as by relying on non-depository sources.

Central Bank Rate Pass-Through Effects on Kenya’s Lending Rate

Several African nations, including Kenya, Nigeria, and South Africa, have seen dramatic shifts in their monetary policy framework and financial environment during the last two decades. To manage and stabilize the economy, the Central Bank of Kenya (CBK) stopped intervening directly in lending low interest rates at financial institutions and instead turned to indirect and market-based measures to carry out monetary policy. Even though it was predictable that a changing financial environment would have a substantial impact on the efficacy of monetary policies, there has not been sufficient research done to determine how IRPT affects lending rates. The purpose of this article was to analyze the pass-through effects of the central bank rate on lending rates in Kenya. The study adopted a non-experimental research design. Data was collected from the CBK, the Kenya Bureau of National Statistics, and the Nairobi Stock Exchange between 2010 and 2021 quarterly data. The study's theoretical underpinning was the loanable funds theory and cost of capital. The cost-of-funds method is based on the conventional marginal cost pricing model for financial markets and helps explain how market prices are transmitted to consumers. The error correction model was used to measure the short-term effect of bank rate changes on Kenyan lending rates. The findings showed that Kenya has an incomplete IRPT which means that increases in the lending rate would be less than proportional whenever there is a change of a specific percentage in the CBR. According to the study, this may be one of the causes of some banks' foreign ownership, their independence from the central bank's liquidity, and their slow reaction times to signals from the central bank to modify lending rates. The study recommends that since commercial banks are a very important component in the transmission mechanisms, they should follow suit in the adjustment of the lending rates.

Solving the insolvency of troubled banks: a theoretical and applied aspect

The European election of Ukraine takes place in the context of scaling military conflicts, global shifts from geo-economic fragmentation, and new economic challenges that require the determination of the legal status of the participants in insolvency relations, procedures of temporary administration, financial rehabilitation, and liquidation of banks. Methodological and applied approaches are characterized to track the growth of Ukraine's external financial vulnerability and the specific weight of cross-border banking operations in European integration. It is found that it is essential to determine the impact of gross flows on financial stability, geographical and financial determinants of cross-border banking requirements, and the impact of internal, external, and global factors. In the applied aspect, it is argued that in the event of insolvency, banks will use the same rights for protection, regardless of whether these measures were adopted under EU or national law. It was established that Ukraine's entry into international business cycles would spread financial innovations between countries, forming a critical channel for the transmission of financial shocks. The macroeconomic volatility of economies influences the occurrence of bank insolvency; the uncertainty of the macroeconomic situation affects the market balance and complicates the regulator's road maps. It was determined that monitoring trends between insolvency and illiquidity is expedient to form an additional equity buffer to cover additional costs. It was established that it is expedient to systematize measures to prevent insolvency from resolving the insolvency of problem banks and financial recovery considering modern realities; improve the efficiency of financial liability management; negotiations with debtors; protect the interests of managers and shareholders; consulting on issues of international insolvency. Keywords: bank insolvency, financial security, banking supervision, resolution tools, financial sector, financial recovery, capital, risks, creditors.

Reconstruction of Regulations in Legal Protection for Customers in the Event of Banking Liquidity Based on Justice

<p><em>In this research article, we will attempt to present discussions related to the analysis of bank liquidity regulations based on applicable laws and regulations, analyze to understand the legal protection of depositors/customers when a bank liquidation occurs, and analyze the reconstruction of legal protection for customers in bank liquidation based on the principle of justice. The research method employed in this study is a sociological or non-doctrinal approach, where the primary focus is on collecting primary data. To obtain the necessary data for this research, the author utilized a juridical-empirical legal research method. In empirical research, the emphasis is on the application of law in the real field (law in concreto). The research was conducted by initially examining secondary data, followed by primary data research conducted in the field or within the community. The results of the research indicate that customer protection related to bank liquidation has been anticipated by the banks themselves through implicit and explicit protections, both of which have been explained and regulated in banking law. Bank Indonesia has the authority to provide guidance and supervision to ensure the continuity of bank operations, and Bank Indonesia also determines provisions related to the health of banks by considering aspects such as investors, asset quality, management, liquidity, for example, regarding customer protection and the provision of credit to customers, which is guided and supervised, affecting the health and smooth operation of banks. Therefore, there is a need for a restructuring of legal customer protection regulations in bank liquidation based on the principle of justice. Every bank is obligated to guarantee the funds of the public deposited with the respective bank. The government needs to organize Law Number 10 of 1998 concerning Banking, particularly the protection of bank customers in the case of liquidation, to be emphasized in banking management.</em></p>

Bank liquidity hoarding and bank systemic risk: The moderating effect of economic policy uncertainty

In this article, we use panel data from 457 listed banks in 20 countries to investigate the impact of bank liquidity hoarding on systemic risk in the banking sector and discuss it under the condition of economic policy uncertainty (EPU). Empirical evidence suggests that when banks' liquidity hoarding increases, their systemic risk contribution decreases significantly. Furthermore, we demonstrate that bank liquidity hoarding works through the channel of improving bank operational stability and reducing bank asset risk. In addition, during a period of high EPU, bank liquidity hoarding has a more significant effect on reducing systemic risk. Our results remain stable after a battery of robustness checks. Heterogeneity analysis indicates that the role of bank liquidity hoarding in reducing systemic risk is more significant in larger banks and banks in developed countries. Moreover, this effect is particularly pronounced when there is an accommodative monetary policy environment. Our study has some important implications for policymakers and regulators. Previous research suggests that policymakers may consider encouraging the banking sector to actively create liquidity instead of hoarding it, as this could lead to higher economic output. However, from the perspective of financial stability, banks' liquidity hoarding can help reduce their systemic risk contribution, especially in periods of high external uncertainty. Therefore, policymakers need to evaluate bank liquidity hoarding behaviour more comprehensively, and strike a balance between promoting economic growth and ensuring financial system stability to maximize overall welfare.

Bank liquidity creation and religious observance: Evidence from Ramadan fasting

I examine the effect of religious observance, represented by fasting hours during the month of Ramadan, on bank liquidity creation. I exploit exogenous variation of Ramadan fasting hours that depends on: (1) the timing of Ramadan based on the rotating Islamic calendar; and (2) a country’s latitude. My results document that one additional Ramadan fasting hour reduces bank liquidity creation by 1.1% within countries with the share of Muslim population above 50%. No such effect is found in Muslim-minority countries. In terms of transmission channel, I find that intensified Ramadan fasting reduces the productivity of economic agents that use financial services, hence lower the demand for bank liquidity creation. My results are robust for a battery of sensitivity checks and omitted variables concerns. The results offer novel insights into the effect of a specific religious observance on bank liquidity creation in the Islamic world.

Effects of Institutional Governance on Financial Performance of Commercial Banks in Kenya

Although the banking industry is a very important vehicle for spurring economic development and especially in least developed economies, the Kenyan commercial banks are facing financial performance constraints, leading to collapse and liquidation of numerous commercial banks. Accordingly, borrowers, depositors and shareholders are suffering enormous financial losses; which have dramatic implications for the economy of the country. The crisis in this very crucial industry has associated with poor institutional governance. Although various studies have been undertaken on institutional governance and financial performance, majority of the studies have yielded inconsistent result while others have contextual, conceptual and methodological gaps. So, this study analysed the effect of institutional governance on financial performance of Kenyan commercial banks. It adopted descriptive and diagnostic research designs to outline the characteristics of existing phenomenon. The target population was the 43 commercial banks licensed and operating in Kenya. Since the sample size was easily accessible and manageable the study used census. Data was collected using primary sources using a questionnaire, Data was analysed using quantitative analysis approach to produce descriptive statistics and thereafter multiple regressions to estimate a model. The study found that at 5% significance, level board size, ownership concentration, audit structure and, board composition, positively and significantly affects financial performance of licensed Kenyan Commercial Banks. The study recommends that Kenyan Commercial Banks should review their board size policies, largely focus on having audit committee, and strengthen their board composition guidelines to ensure board diversity comprises.

Implementation of Minimum Mandatory Giro (Gwm) in Sharia Banking Perspective Analysis of Siyasah Syar'iyyah Maliyyahtitle

This research analyzesthe implementation of Mandatory Reserve Requirement (GWM) in Islamic banking in Indonesia, with a focus on the duplication of money resulting from the implementation of GWM in Islamic banking, the regulation of GWM in Islamic banking in the view of Siyasah Syar'iyyah Maliyyah, and finding a more just system solution for GWM regulation in Islamic banking in Indonesia. In this research, the researcher used a qualitative research method with a library research type and a philosophical approach. The results of this research show that GWM is a monetary instrument applied by the central bank to ensure the liquidity and solvency level of banks in the financial system. The purpose of implementing GWM is to ensure that banks have enough funds to handle their liquidity needs and to ensure the stability of the overall financial system. Then, the perspective of Siyasah Syariyyah Maliyyah shows that the implementation of Islamic economics in Indonesiamust be practiced according to the socio-cultural conditions in Indonesia. Currently, GWM is something that cannot be avoided, and there is still no new system that can replace it for Islamic banks. Therefore, GWM in Islamic banking is one of the monetary instruments that can control inflation. The existence of GWM in Islamic banking in the concept of Maslahah is at the level of tahsiniyat (tertiary). The debate over the existence of GWM in Islamic banking presents several solutions to provide justice for all parties, including changing the fractional reserve banking system to Narrow Banking, which clearly distinguishes between savings and deposits, emphasizes the principle of amanah, and separates profit-making activities in banking through cooperation with separate affiliate organizations from the bank itself. Because the fractional reserve banking system has been challenged in Switzerland, the solution to GWM gharar is the sovereign money system, which is similar to full reserve coverage, but goes further by giving full control over deposits seen by the central bank. So there is no gharar element. In other words, existing savings "create" loans

A fiscal theory of money and bank liquidity provision

Fiscal-backed money can provide additional liquidity to consumers and mitigate the liquidity shortage problem in an economy with banks where agents face idiosyncratic liquidity shocks without being fully insured. The government issues fiat money and creates real value for money by levying a tax and accepting money for tax payments. Tax reallocates the distribution of liquidity in the economy. An increase in tax, by increasing fiscal surplus and the real value of money, reduces the equilibrium investment. Additionally, imposing taxes influences the incentive of private information production, which may impose a constraint on optimal fiscal policy.

Constructing early warning indicators for banks using machine learning models

This research contributes to bank liquidity risk management by employing supervised machine learning models to provide banks with early warnings of liquidity stress using market-based indicators. Identifying increasing levels of stress as early as possible provides management with a crucial window of time in which to assess and develop a potential response. This study uses publicly available data from 2007 to 2021, covering two severe stress periods: the 2007–2008 global financial crisis and the COVID-19 crisis. The current version of the developed model then applies backtesting using the data from the COVID-19 crisis. The findings of this study show that the ensemble model with the RUSBoost algorithm predicts “red” and “amber” days with a success rate 21% greater than the average of other machine learning models; thus, it can greatly contribute to bank risk management.

Legal Protection of Depositors' Funds in The Event of Bank Liquidation

In general, a bank is a financial intermediary institution generally established with the authority to accept money deposits, lend money, and issue promissory notes or what is known as banknotes, banks in carrying out one of their functions are collecting funds from the public in other words, storing funds in the bank gets the benefit of interest for customers, in this case not all the benefits promised by the bank can be realized the higher the interest it seems that we as customer consumers feel benefited, but in reality there are banks that provide high interest after that the health of their banks decreases so that it has an impact on customer consumers on their savings at the bank. The formulation of the problems raised in this study are 1). What are the consequences or legal consequences for banks in the placement of funds that are not in accordance with the LPS policy in the event that the bank is not healthy? 2). How is the legal protection of depositors in the event that the bank is liquidated by LPS? This research uses normative legal research methods, namely research by collecting and analyzing secondary data using secondary data sources only, namely books related to the problem, relevant laws and regulations, relevant court decisions, legal theories and relevant scholars' doctrine experts, and case studies related to legal issues, the theory used to analyze the theory of satisfaction, the theory of legal certainty and the theory of legal protection. The conclusion of this research is to provide protection to customers if they save funds in banks that are determined to be unhealthy by the Deposit Insurance Corporation so that customers feel safe if they want to save their funds in the banking world.

STRATEGI PEMERINTAH INDONESIA MENGATASI MASALAH EKONOMI PADA MASA REFORMASI (1999 – 2004)

The 1997 economic crisis was a miserable history for the Indonesian. The New Order government, which was unable to handle the storm of crises, made people's lives even more miserable. The economic reforms carried out by the post-New Order government were expected to overcome the crisis. This study aims to explore the various strategies adopted by the government at the beginning of the reform to deal with the crisis. The government in question is from 1999 to 2004. The research method uses the historical method with 4 steps, namely heuristics, verification, interpretation, and historiography. The years 2001 and 2002 recorded the highest inflation rates, the weakening of the rupiah exchange rate against the US dollar, and the highest annual interest rates. The strategy undertaken to deal with the economic crisis included carrying out Monetary Policy (controlling the money supply and raising SBI interest rates), bank liquidation, forming the National Economic Council, financial restructuring, and increasing investment. These various strategies have had a positive impact on reducing the rate of inflation and increasing the rate of economic growth.