Liquidity Of Commercial Banks Research Articles

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Was the U.S. Great Depression a Credit Boom Gone Wrong?

The US Great Depression was preceded by almost a decade of credit growth. This review paper suggests that low general inflation and a slowdown in broad money growth in the 1920s masked the extent of the credit boom and a deterioration in the banking system’s balance sheet. Credit from commercial banks grew tremendously, and credit from savings institutions grew even more. While there was no general inflation, the credit boom was reflected in asset price inflations which occurred in certain parts of the economy, such as the real estate and stock markets. Broad money growth slowed in part because of a fall in the liquidity of commercial banks. And as the literature tends to show, the growth of credit and the fall in liquidity made financial institutions as well as households vulnerable to shocks. While monetary authorities managed to keep inflation in check, standard monetary policy tightening was ineffective in quelling the credit boom, and at times counter-productive. This points to macro- and micro-prudential tools as potentially more successful alternative measures to keep credit under control.

The determinants of liquidity risk of commercial banks in Vietnam

This research identifies factors that explain the liquidity of commercial banks in the Vietnam banking system from 2010 to 2015. Using the OLS regression method for analysis, it was found that: the interbank market helps commercial banks improve their liquidity; the larger the loan size, the higher the liquidity risk; good credit risk management has a positive impact on liquidity risk management; and long-term interest rate is negatively related to the liquidity of commercial banks. The research also makes recommendations on liquidity risk management policies to banks and policy-makers from the Government and the State Bank of Vietnam.

Determinants of Banks Liquidity: The Case of Private Banks in Ethiopia

The objective of the study was to examine the impacts of both bank specific and macroeconomic factors on banks liquidity of Ethiopian private commercial banks and examine the trends of private banks liquidity. In order to achieve the objectives the researcher used Quantitative research approach and balanced panel data. Fixed effect regression model was used to examine the impacts of independent variables on dependent variables for selected private banks in Ethiopia from 2009-2016. Data was collected from NBE annual report and MOFED. The collected data was analyzed by using descriptive statistic and inferential analysis. The study used bank size, profitability, capital adequacy; cash reserve ratio, interest rate margin, loan growth rate, nonperforming loan, interest rate on loan, real GDP, inflation rate as independent variables and liquid asset to deposit ratio as a dependent variable. The result of the fixed effect model suggested that cash reserve ratio, profitability, nonperforming loans had positive and significant effect on banks liquidity, while bank size, deposit ratio, loan growth rate and interest rate margin had negative and significant impact on banks liquidity. However, variables like capital adequacy ratio, real GDP and inflation found to be insignificant. The study suggested that, all private commercial banks of Ethiopia should give due attention to bank specific factors by providing effective and well structured policies and procedures. Keywords :Determinants of banks liquidity, Ethiopian Private commercial banks, Fixed Effect Regression model, and Liquid asset total deposit ratio DOI : 10.7176/RJFA/10-3-05

Network Relationship between Commercial Bank Liquidity Indicators and Various Indicators—Based on Bayesian Network

Draining liquidity is one of the main reasons for the financial crisis. Therefore, exploring the link between various indicators of banks and bank liquidity has great significance for studying bank liquidity risk. The article applies principal component to analysis the main components are extracted from the perspectives of assets, loans, deposits, borrowings and reserves. Then the Bayesian network is used to construct a network of links between liquidity and indicators based on this.

The Impact of Liquidity Risk of Commercial Banks on Systematic Risk of Banking Industry: Study of 16 Listed Commercial Banks

The US subprime mortgage crisis erupted in 2007, and the most fundamental reason was the depletion of financial intermediation liquidity. The rapid spread of liquidity crisis in the interconnected financial markets, so financial institutions took excessive risks and collapsed. Then the final liquidity risk evolved into systemic risk. Firstly, this paper studies the development history and the latest progress of systematic risk management, the theory of liquidity risk management and the theory of risk-taking behavior management. The paper constructed two dynamic Division number regression to measures ΔCoVaR of 16 commercial banks. Then the dynamic panel regression model is built, which takes the liquidity risk index of individual commercial bank and the interaction between individual commercial bank liquidity risk index and risk-taking index as the main explanatory variables to analyze the banking systemic risk. The research finds that the greater the liquidity risk of individual commercial banks, the higher the contribution of their systemic risk. The risk-taking of individual commercial bank can play an effective role in regulating and weakening its ΔCoVaR. In addition, the large size of the bank does not mean that the greater the contribution of its systemic risk. In terms of liquidity risk regulation, banks would better use liquidity creation indicators and liquidity ratios, rather than loan-to-deposit ratios. Finally, combined with the results of empirical analysis and theoretical analysis, this paper puts forward some suggestions on bank risk management.

Macroeconomics And Bank-Specific Factors Affecting Liquidity: A Study Of Nepali Commercial Banks

This paper aims to examine the form and pattern of liquidity, NPL, return on assets, CAR, return on equity, GDP, inflation and interbank rate in Nepalese commercial banks. The study is intended to analyze the relationship between liquidity and bank specific variables in Nepalese commercial banks. The key findings stated that there is significant relation between numbers of variables that impacts on the liquidity performance of Nepalese commercial banks. The panel data of commercial banks from 2010/11 to 2016/17 has been taken for the purpose of the research. Mean, standard deviation, correlation and multiple regression analysis have been used to diagnose date to meet the specific objectives of research. The results reveal that there is significant influence of ROA, ROE, NPL, GDP and IBR on LIQ.

Macroeconomics And Bank-Specific Factors Affecting Liquidity: A Study Of Nepali Commercial Banks

This paper aims to examine the form and pattern of liquidity, NPL, return on assets, CAR, return on equity, GDP, inflation and interbank rate in Nepalese commercial banks. The study is intended to analyze the relationship between liquidity and bank specific variables in Nepalese commercial banks. The key findings stated that there is significant relation between numbers of variables that impacts on the liquidity performance of Nepalese commercial banks. The panel data of commercial banks from 2010/11 to 2016/17 has been taken for the purpose of the research. Mean, standard deviation, correlation and multiple regression analysis have been used to diagnose date to meet the specific objectives of research. The results reveal that there is significant influence of ROA, ROE, NPL, GDP and IBR on LIQ.

Vliv příslušnosti k finanční skupině na likviditu a solventnost bank ve Visegrádských zemích

The aim of this paper is to evaluate the liquidity and solvency of commercial banks in the Visegrad countries during the 2000-2016 period and to determine whether banks that belong to a financial conglomerate are more or less liquid and solvent than other banks in the sector. We used four liquidity ratios and one solvency ratio and compared the value of these ratios of banks with the median values in each banking sector. We will focus on banks from five financial conglomerates: Erste Group, KBC Group, Raiffeisen Bank International AG, Societe Generale Group and UniCredit Group. All banks that belong to a financial conglomerate in Hungary are more solvent and mostly more liquid than other banks in the Hungarian banking sector. Banks from all analyzed groups held a higher buffer of liquid assets and mostly focus less on providing loans to non-bank customers. As the other results are mixed (for individual financial groups, individual countries, individual financial ratios), we cannot confirm that banks in a financial conglomerate are more or less liquid and solvent than other banks in the banking sector.

The sovereign credit and the limited foreign exchange outflow and the liquidity management of foreign exchange reserves

In this paper, we use the models of the commercial bank liquidity management to study the liquidity of foreign exchange reserves. We build a model for the liquidity management of foreign exchange reserves, which includes the sovereign credit and the limited foreign exchange outflow, and we propose an optimal proportion with which the central banks hold their foreign exchange reserves in the form of liquidity and an accuracy measurement of the whole gains of foreign exchange reserves.

Uticaj specifičnih bankarskih faktorana likvidnost komercijalnih banaka u Srbiji

The aim of this work is to identify internal factors that affect the liquidity of commercial banks in Serbia. Research results in the observed period from 2008 to 2013 using regression analysis indicate that the liquidity of banks is positively correlated with capital adequacy ratios and interest income to total assets ratio, while negative and statistically significant relationship exists between the indicators of liquidity and the size of the bank (measured by bank assets), expense ratios compared to interest income and return on equity ratios. This research represents the first step in achieving optimization model of liquidity, because many financial institutions, although profitable, are faced with the problem of maintaining liquidity. Research question that arises is the following: Which of the observed indicators affect the liquidity of commercial banks in Serbia the most? The survey used unconsolidated balances of 23 commercial banks in the period from 2008 to 2013. In particular, using ordinary least squares technique, author takes two different measures of liquidity risk into consideration. After obtaining an answer to the main question of this work regarding the key indicators of impact on the liquidity of the banking sector in Serbia, one can define the strategies and model for improvement of the operation of banks in financial markets. The results highlight that size, capitalization and profitability of banks can have an impact on liquidity risk management.

Modelling the Impact of Liquidity Trend on the Financial Performance of Commercial Banks and Economic Growth in Cameroon

Recent year statistics have revealed the build-up of excess liquidity in Cameroonian commercial banks for more than two decades now. This has led to renewed interest in liquidity management, as it has implications on the financial performance of commercial banks. This paper is therefore designed to examine the impact of excess liquidity on the financial performance of commercial banks in Cameroon. Using Return on Assets (ROA) as proxy for the measurement of financial performance, secondary data from 1990 to 2016, with the application of the VAR technique, the findings reveals that excess liquidity and total liquid outflows affect ROA negatively. Gross domestic product, interest rate gap, total liquid inflows and previous year ROA had positive effects on ROA. Also from the empirical findings, there is an existing significant negative chain between excess liquidity, commercial bank performance and economic growth in Cameroon based on the Koyck Geometric lag reasoning. To address the negative vicious cycle chain, we therefore recommend guided minimum and maximum liquidity regulatory control and government effort geared towards encouraging moral suasions and special directive of investment by commercial banks in the agricultural, industrial and the educational sectors in Cameroon. Also, commercial banks should set maturity mismatch limits appropriate to the size of excess liquidity observed in each bank. Attempt to reverse the chain is part of the assurance to Cameroon emergence by 2035.

Liquidity and Off-Balance Sheet Items: A Comparative Study of Public and Private Sector Banks in India

Liquidity is the life-line of every business. Banking business’ liquidity was the bone of contention during the economic crisis of Greece and the downfall of Finance Behemoth like Lehman Brothers. Banking Sector-Illiquidity was the epicentre of such crisis. Globally, the Off-Balance Sheet Exposure played a vital role in managing liquidity and solvency issues of commercial banks. This research paper explores the concepts, aspects, analysis of liquidity and the impact of Off-Balance Sheet Items on Liquidity and Solvency. Furthermore, this paper focuses on the liquidity aspects of Public and Private Sector banks towards scrutinizing whether the ownership has any influence on the liquidity and solvency aspects of the banking structure, under the backdrop of Off-Balance Sheet Exposure. Besides, it looks into the unpredictability of RBI’s policies on liquidity like Cash Reserve Ratio, Statutory Liquidity Ratio etc.

Indicators to assess bank’s liquidity

The article analyses the problems of liquidity assessment of an individual commercial bank. Shortcomings in assessing the liquidity of the bank on the basis of the regulatory approach of the National Bank of Ukraine are reflected; methods of assessing the liquidity of individual commercial banks on the basis of the method of coefficients are developed. The proposed method of calculation of public and private bank liquidity ratios is so universal, that the practice of emergency funds on correspondent accounts with the NBU and the individual bank’s assessment of currency risk (calculation of absolute and relative values of foreign currency positions in each type of currency and bank metals) are redundant. The practical management of the bank received an approach that not only assesses the bank's liquidity risk as the possibility of adverse events, but also the possibility of assessment of excess liquidity, which affects the loss of future income

Determinants of deposit potential as inverse liquidity indicator of commercial banks in Serbia

The aim of this paper is to identify determinants of liquidity of commercial banks in the Republic of Serbia, observing the macroeconomic and banking-specific indicators, or micro-economic indicators which were analyzed by descriptive statistics, correlation and regression analysis from 2008 to 2014. The correlation for the observed variables is calculated from 140 samples for internal and external independent variables of impact to the dependent variable - liquidity measured by indicator of deposits. The subject of research is the process of optimization model reducing the factors of liquidity to variables that have the most significant impact on liquidity indicator measured by deposit potential. Results of the model show that liquidity of banks is dominantly determined by the size of banks assets. With growth of the assets, banks are exposed to a greater risk of liquidity. The increase in capital adequacy ratio has a positive effect on the liquidity of banks. Net interest margin is positively correlated with the indicator of deposit potential which indicates a negative impact on the liquidity of banks as well as the ratio of operating expenses to operating income.

Financial Regulation in a Quantitative Model of the Modern Banking System

This paper builds a quantitative general equilibrium model with commercial banks and shadow banks to study the unintended consequences of capital requirements. In particular, we investigate how the shadow banking system responds to capital regulation changes for traditional banks. A key feature of our model are defaultable bank liabilities that provide liquidity services to households. In case of default, commercial bank debt is fully insured and thus provides full liquidity services. In contrast, shadow banks are only randomly bailed out. Thus, shadow banks' liquidity services also depend on their default rate. Commercial banks are subject to a capital requirement. Tightening the requirement from the status quo, leads households to substitute shadow bank liquidity for commercial bank liquidity and therefore to more shadow banking activity in the economy. But this relationship is non-monotonic due to an endogenous leverage constraint on shadow banks that limits their ability to deliver liquidity services. The basic trade-off of a higher requirement is between bank liquidity provision and stability. Calibrating the model to data from the Financial Accounts of the U.S., the optimal capital requirement is around 20\%.

Imbalanced Liquidity Risk Management: Evidence from Latvian and Lithuanian Commercial Banks

The nature of the liquidity risk lies in specific peculiarities of banking institutions activities. Thanks to a big amount of short-term resources banks can afford to offer long-term loans drawing their profit from higher interest rates on loans. It causes a situation with a discrepancy in the terms and the sums of assets and liabilities. As a result, the bank is exposed to the risk of being short of current liquidity in case a large number of depositors would like to withdraw their money. The bank is able to collect its resource base either by attracting additional deposits at higher interest rates or by means of a compelled unprofitable realization (selling) of its other assets. Apart from that, another source of potential liquidity problems is bank sensitivity to the fluctuations in interest rates: in case they grow, some of the depositors could withdraw their money in search of higher income in other deposits (investments); obtaining liquid assets by means of loan borrowing could prove to be more expensive while some kinds of loans could turn out to be unavailable. Taking into account the above-mentioned, the authors make a research of the problems of imbalanced liquidity in commercial banks considering the influence of both external and internal factors; reveal the reasons which have caused them, as well as expose the drawbacks in the imbalanced liquidity risk management.

Управление ликвидностью коммерческого банка как составляющей его финансовой устойчивости

The article describes the concept of commercial bank liquidity management. The algorithm for commercial bank liquidity management, with the help of which the bank has the ability to identify liquidity reduction objects, identify threats that have impact on banking institution liquidity,is offered. The ways of maintaining the bank liquidity, which include the introduction of new competitive products, improving credit and deposit policy, cooperation with insurance companies and the like, are determined.

Liquidity and Profitability Analysis of Commercial Banks in India - A Comparative Study

Indian economic environment is witnessing path breaking reform measures. The financial sector, of which the banking industry is the largest player, has also been undergoing a metamorphic change. This reform has not only influenced the productivity and efficiency of many of the Indian Banks, but has left everlasting footprints on the working of the banking sector in India. Certain trends like growing competition, product innovation and branding, focus on strengthening risk management systems, emphasis on technology have emerged in the recent past. Today the banking industry is stronger and capable of withstanding the pressures of competition. While internationally accepted prudential norms have been adopted, with higher disclosures and transparency, Indian banking industry is gradually moving towards adopting the best practices in accounting, corporate governance and risk management. The major role of banks is to collect money from the public in the form of deposits and then along with its own funds to serve the demands of the customers quickly, paying interest for the deposits and to meet out the expenses to carry out its activities. For this purpose, banks maintain adequate liquidity and earn profits from its activities. Profit is the main reason for the continued existence of every commercial organization and profitability depicts the relationship of the absolute amount of profit with various other factors. In any case, compared to other business concerns, banks in general have to pay much more attention for balancing profitability and liquidity. Liquidity is required to meet out the prompt demands of customers and profitability is required to meet out the expenses of banks. But both the terms are contradictory in nature. If banks maintain more liquidity, their profitability decrease and if they increase their profitability they will have to reduce their liquidity. In this way, banks act as an engine for a business organization. So in the present study an attempt has been made to evaluate the performance of different categories of banks viz. public, private and foreign bank groups in India. For evaluating the performance, eleven financial ratios have been used. These ratios further have been categorized into two categories viz. liquidity and profitability. The period of study cover the years 2005-06 to 2011-12. From the results, it has been found that during the study period the liquidity and profitability position of public sector bank group declined while it has improved in other two groups.

Liquidity and Profitability Analysis of Commercial Banks in India - A Comparative Study

Indian economic environment is witnessing path breaking reform measures. The financial sector, of which the banking industry is the largest player, has also been undergoing a metamorphic change. This reform has not only influenced the productivity and efficiency of many of the Indian Banks, but has left everlasting footprints on the working of the banking sector in India. Certain trends like growing competition, product innovation and branding, focus on strengthening risk management systems, emphasis on technology have emerged in the recent past. Today the banking industry is stronger and capable of withstanding the pressures of competition. While internationally accepted prudential norms have been adopted, with higher disclosures and transparency, Indian banking industry is gradually moving towards adopting the best practices in accounting, corporate governance and risk management. The major role of banks is to collect money from the public in the form of deposits and then along with its own funds to serve the demands of the customers quickly, paying interest for the deposits and to meet out the expenses to carry out its activities. For this purpose, banks maintain adequate liquidity and earn profits from its activities. Profit is the main reason for the continued existence of every commercial organization and profitability depicts the relationship of the absolute amount of profit with various other factors. In any case, compared to other business concerns, banks in general have to pay much more attention for balancing profitability and liquidity. Liquidity is required to meet out the prompt demands of customers and profitability is required to meet out the expenses of banks. But both the terms are contradictory in nature. If banks maintain more liquidity, their profitability decrease and if they increase their profitability they will have to reduce their liquidity. In this way, banks act as an engine for a business organization. So in the present study an attempt has been made to evaluate the performance of different categories of banks viz. public, private and foreign bank groups in India. For evaluating the performance, eleven financial ratios have been used. These ratios further have been categorized into two categories viz. liquidity and profitability. The period of study cover the years 2005-06 to 2011-12. From the results, it has been found that during the study period the liquidity and profitability position of public sector bank group declined while it has improved in other two groups.