Liquidity Of Commercial Banks Research Articles

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.

Determinates of Commercial Banks Liquidity: Internal Factor Analysis

This study was undertaken to explore the determinants of liquidity in Zimbabwean commercial banks. The research paper was motivated by the persistent high liquidity crunch currently be delving operations of commercial banks. An explanatory research design was adopted to find out variables that determine banks liquidity. An Ordinary Least Squares (OLS) model was developed after testing the variables for stationary to avoid spurious regression using the Augmented Dicker-Fuller (ADF) unit root test. Pearson’s correlation analysis was used to examine the existence of correlation between the repressors and the regressed. The study identified that non-performing loans are highly negatively related with banks liquidity signifying that this variable influence bank liquidity to a larger extent. A positive relationship between bank size and capital adequacy ratio and liquidity was established. Contrary to expectations a positive relationship was obtained between loan growth and banks liquidity. The following recommendations were made. Banks should devise robust credit risk management tools to reduce credit risk, tap into the offshore markets to obtain more credit to extent to their clients and the central banks should speed up the operation of ZAMCO which is meant to take over banks bad debts.

Liquidity of Czech and Slovak commercial banks

As liquidity problems of some banks during global financial crisis re-emphasized, liquidity is very important for functioning of financial markets and the banking sector. The aim of this paper is therefore to evaluate comprehensively the liquidity positions of Czech and Slovak commercial banks via different liquidity ratios in the period of 2001–2010 and to find out whether the strategy for liquidity management differs by the size of the bank. We used unconsolidated balance sheet data over the period from 2001 to 2010 which were obtained from annual reports of Czech and Slovak banks. The sample includes significant part of Czech and Slovak banking sector (not only by the number of banks, but also by their share on total banking assets). We have calculated five different liquidity ratios for each bank in the sample. The results showed that liquidity of Czech banks has declined during last ten years. On the contrary, liquidity of Slovak banks fluctuated only slightly during the period 2001–2008. Bank liquidity has fallen due to the financial crisis in both countries; the impact is worse for Slovak banks. Both Czech and Slovak banks have become less liquid also as a result of increase in lending activity. Czech and Slovak banks have the same strategies how to insure against liquidity crises: big banks rely on the interbank market or on a liquidity assistance of the Lender of Last Resort, small and medium sized banks hold buffer of liquid assets.

Determinanty likvidity komerčních bank v Maďarsku

As liquidity problems of some banks during global financial crisis showed, liquidity is very important for functioning of financial markets and the banking sector. This paper therefore aims to identify determinants of liquidity of Hungarian commercial banks. The data cover the period from 2001 to 2010. Results of panel data regression analysis show that bank liquidity is positively related to capital adequacy of banks, interest rate on loans and bank profitability and negatively related to the size of the bank, interest margin, monetary policy interest rate and interest rate on interbank transaction. The relation between the growth rate of gross domestic product and bank liquidity is ambiguous.

Liquidity Stress Testing for Commercial Banks and its Empirical Study

A new index system of commercial bank liquidity stress testing is set up after cluster analysis of R type. And the index weight is determined by the approach of variation coefficient. Liquidity stress testing model of commercial banks is set up based on excess reserve ratio, liquidity ratio and proportion of loans from other banks. The liquidity stress testing model is verified by using Commercial Bank as an example in which a serious crisis took place late in 2008. The innovative feature of this paper: Firstly, observable indices replace unobservable ones, it is feasible for bank stress testing; Secondly, R cluster analysis is used to delete the correlations among indexes, avoiding repetition and cumbersome of indices; Thirdly, the approach of variation coefficient is used to get the weight of the index, determining the key factors to ensure the important indicators of stress testing. Fourthly, the results show that the excess reserve ratio, liquidity of borrowing ratio and liquidity ratio are important indices in commercial banks stress testing.

BANK LIQUIDITY RISK: ANALYSIS AND ESTIMATES

In today’s banking business, liquidity risk and its management are some of the most critical elements that underlie the stability and security of the bank’s operations, profit-making and clients confidence as well as many of the decisions that the bank makes. Managing liquidity risk in a commercial bank is not something new, yet scientific literature has not focused enough on different approaches to liquidity risk management and assessment. Furthermore, models, methodologies or policies of managing liquidity risk in a commercial bank have never been examined in detail either. The goal of this article is to analyse the liquidity risk of commercial banks as well as the possibilities of managing it and to build a liquidity risk management model for a commercial bank. The development, assessment and application of the commercial bank liquidity risk management was based on an analysis of scientific resources, a comparative analysis and mathematical calculations.

Optimal Bank’s Liquidity Supply by the Central Bank: A Microeconomic Approach

The excess liquidity of commercial banks is very often mentioned in the CEMAC as one of the limits of monetary policy implementation by BEAC. In this paper, we tried to address excess reserves in the CEMAC banking system looking from the point of view of commercial banks. Indeed, commercial banks may decide to hold reserves above the level required by the regulator for costs minimization perspectives. By minimising the cost function of each commercial bank, we derived the optimal level of excess liquidity desired by it. The obtained results allow classifying the banks of the CEMAC zone into two categories depending on the level of excess reserves necessary to minimize their costs and provide the amounts of liquidity desired by them. The Central Bank can then use this information to improve its liquidity supply to the banking system by anticipating the demands of liquidity by commercial banks during open market operations.

Basic Requirements Of The Basel Committee On Regulating Capital Adequacy And Liquidity Of Commercial Banks

The current paper highlights theBaselI, Basel II & Basel III requirements on capital adequacy and liquidity of commercial banks. In the paper, Basel II structure, methods of loan risk assessment, coefficients of loan risk assessment, credit risk measurement for counterparty banks are discussed. Moreover, assessments of Basel III on bank chances against crisis driven from financial and economic crunches, risk management, performance quality and bank transparency improvement measures are presented. At the end, the author gives his conclusions on the essence and necessity of new regulatory standards of the Basel Committee on bank’s supervision in the structure of the supervision of credit institutions.

Determinants of Excess Liquidity in Tanzanian Commercial Banks

Among the current concerns in Tanzania is that banks are awash with liquidity notwithstanding the private sector high demand for credit. Excess liquidity constrains banks' productivity / efficiency; and on the other hand, strangles the share of credit allocated to the private sector, thereafter upsetting economic growth. To determine the causes of excess liquidity, autoregressive distributed lag model is employed. The findings suggest that high cost of funds, credit risks, volatility of deposit holders' cash preference, inter alia, perpetuated accumulation of excess liquidity in commercial banks. Important policy implications on price stability, risks minimization, proper supervision and optimal liquidity management are highlighted.

The regulatory response to the financial crisis

There are numerous aspects concerning financial regulation which the current financial turmoil has high-lighted. These include: (1) the form of deposit insurance; (2) bank solvency regimes, ‘prompt corrective action’; (3) Central Banks’ money market operations; (4) commercial bank liquidity risk management; (5) procyclicality of CARs (and mark-to-market); lack of counter-cyclical instruments; (5) boundaries of regulation, conduits, SIVs and reputational risk; (6) crisis management: (a) within countries, e.g. UK Tripartite Committee; or (b) cross-border, how to allocate the burden of cross-border defaults? This paper describes how the crisis exposed regulatory failings, drawing largely on UK experience, and suggests remedies.

Interbank Payment Flows and Excess Reserves

The interbank fund transfer systems are not only one of the effective measures for Central Bank to perform payment service functions, but also an infrastructure for central bank to carry out monetary policy. This paper makes the empirical analysis for the payment data of the 15 banks in the large value payment system of China, and uses Value-at-Risk (VaR) to estimate the risk of payment flows of large value among banks in the payment system, and so as to forecast the changes of banks' excess reserve. Further, this paper explores the relationship between the interbank payment flows and excess reserve deposits in banks and finds that the excess reserves in different banks will change with the changes of interbank payment flows. Therefore, the paper comes to some conclusions that central bank should consider the different characteristics and risks of participating banks' payment flows, and take some measures to ensure the participating banks' payment goes smoothly when managing and adjusting the reserve requirement ratios of same kinds of participating banks. Of course, this paper advances some new methods of forecasting changes of commercial banks' excess reserves, which provide a new idea for managing liquidity of commercial banks.

A relevância do canal de empréstimos bancários no Brasil

Este artigo avalia a existência de um canal de empréstimos bancários ativo na transmissão da Política Monetária brasileira. A análise empírica é feita com base em uma regressão de dois estágios que testa como a restrição de liquidez dos bancos reage aos choques monetários.São utilizados dados dos balancetes mensais de 293 bancos comerciais no período de julho de 1994 a dezembro de 2005. A principal conclusão é que o canal de empréstimos bancários é relevante para entendermos a transmissão da Política Monetária brasileira. Esse resultado é encontrado quando os choques monetários são identificados por meio da taxa SELIC, de forma endógena ou exógena, ou pelos recolhimentos compulsórios sobre depósitos à vista.

Forecasting domestic liquidity during a crisis: what works best?

AbstractThe 1990s were a turbulent time for Latin American and Caribbean countries. During this period, the region suffered from no less than 16 banking crises. One the most important determinants of the severity of banking a crisis is commercial bank liquidity. Banking systems that are relatively liquid are better able to deal with the large deposit withdrawals which tend to accompany bank runs. This study provides an assessment of whether behavioural models, linear time series or nonlinear time series models are better able to account for liquidity dynamics during a crisis. Copyright © 2007 John Wiley & Sons, Ltd.

English commercial bank liquidity, 1860–1913

This article presents new half-yearly time series for the asset ratios of commercial banks in England and Wales, 1860-1913. The series reveal new evidence on the nature of the banks' business and are, therefore, relevant to the debate on the role of banks in British economic development. The new estimates are used to examine trends and short-term changes in bank liquidity. Analysis is concerned with the changing stability of bank asset structure and with substitutability across different asset ratios. The main finding is of a sharp, long-term increase in liquidity and a concomitant decline in bank credit to the non-bank, private sector. The article also highlights the significance of short-term shocks to the trend increase in bank liquidity. The new findings are supportive of the argument that, over time, English banks became less involved with the non-bank private sector. In general, the results confirm that the English and Welsh bank asset structure became more liquid over time. However, no detailed breakdown of bank loans to the non-bank, private sector (for example, between business loans and personal loans), is available for this period. Moreover, the current study offers no evidence as to the trend in financial provision to the business sector from institutions other than the commercial banks. Nevertheless, the results are clear in showing a strong upward trend in commercial bank liquidity and a relative decline in private sector credit provision by the commercial banks.

English commercial bank liquidity, 1860–1913

This article presents new half-yearly time series for the asset ratios of commercial banks in England and Wales, 1860-1913. The series reveal new evidence on the nature of the banks' business and are, therefore, relevant to the debate on the role of banks in British economic development. The new estimates are used to examine trends and short-term changes in bank liquidity. Analysis is concerned with the changing stability of bank asset structure and with substitutability across different asset ratios. The main finding is of a sharp, long-term increase in liquidity and a concomitant decline in bank credit to the non-bank, private sector. The article also highlights the significance of short-term shocks to the trend increase in bank liquidity. The new findings are supportive of the argument that, over time, English banks became less involved with the non-bank private sector. In general, the results confirm that the English and Welsh bank asset structure became more liquid over time. However, no detailed breakdown of bank loans to the non-bank, private sector (for example, between business loans and personal loans), is available for this period. Moreover, the current study offers no evidence as to the trend in financial provision to the business sector from institutions other than the commercial banks. Nevertheless, the results are clear in showing a strong upward trend in commercial bank liquidity and a relative decline in private sector credit provision by the commercial banks.

English commercial bank liquidity, 1860–1913

English commercial bank liquidity, 1860–1913

Commercial Bank Liquidity Management, Discretionary Reserve Behavior, and the Allocation of Credit, 1863–1913. By J. M. Carter. New York: Garland Publishing, 1992. Pp. v, 179. $53.00.

Commercial Bank Liquidity Management, Discretionary Reserve Behavior, and the Allocation of Credit, 1863–1913. By J. M. Carter. New York: Garland Publishing, 1992. Pp. v, 179. $53.00. - Volume 54 Issue 1

A Linear Programming Model for Commercial Bank Liquidity Management

The primary purpose of commercial bank liquidity management is to support other banking functions by maintaining reserves to meet unanticipated deposit withdrawals and an inventory of near cash funds to satisfy potential credit demands. Because of the substantial volume and the frequent turnover of assets and liabilities, liquidity management requires close attention to money market portfolio management as well as to the support of deposit and credit activities. The numerous constraints on such activity suggest that liquidity management may best be accomplished using mathematical programming. This paper describes the development of a practical and usable mathematical programming model for liquidity management in a medium to large commercial bank. Although there are differences in the models, the motivation for the application discussed here comes from Komar [7]. The bank has total assets of approximately $800 million and an investment portfolio (securities and federal funds sold) of approximately $200 million. Since the bank has had no prior experience with mathematical programming techniques, the model must be simple in order to insure that management understands and accepts it. While a simple model may abstract and oversimplify some real world complexities, the model discussed here can still improve liquidity management. The model is designed to help the manager make decisions by providing a comprehensive framework within which to evaluate alternative strategies.

BOOK REVIEWS

The Journal of FinanceVolume 24, Issue 3 p. 553-591 Book Reviews BOOK REVIEWS First published: June 1969 https://doi.org/10.1111/j.1540-6261.1969.tb00382.xRead the full textAboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Share a linkShare onFacebookTwitterLinkedInRedditWechat Abstract Book reviewed in this article: Aggregate Theory and Policy: Studies in Economic Stabilization. Edited by Albert Ando, E. Cary Brown, and Ann F. Friedlaender. Aggregate Theory and Policy: Britain's Economic Prospects. By Richard E. Caves and Associates. Aggregate Theory and Policy: Why Growth Rates Differ. By Edward F. Denison. Aggregate Theory and Policy: Monetary Economics: Readings. Edited by Alan D. Entine. Aggregate Theory and Policy: The Costs of Economic Growth. By Ezra J. Mishan. Business Finance and Investments: Investment Decision-Making. By Albert I. A. Bookbinder. Business Finance and Investments: Investment Analysis and Portfolio Management. By Jerome B. Cohen and Edward D. Zinbarg. Business Finance and Investments: Financial Management and Policy. By James C. Van Horne. Business Finance and Investments: Basic Financial Management: Text, Problems and Cases. By Edward J. Mock, Robert E. Schultz, Raymond G. Schultz and Donald Hart Shuckett. Business Finance and Investments: The Management of Capital Expenditures. By Robert G. Murdick and Donald D. Deming. Financial Institutions and Markets: The Retail Price Structure in American Life Insurance. By Joseph M. Belth. Financial Institutions and Markets: Finances and Banking. Edited by Zdzislaw Fedorowicz. Financial Institutions and Markets: The Five-Year Outlook For Interest Rates. Edited by Herbert V. Prochnow. Financial Institutions and Markets: Mutual Savings Banks and Savings and Loan Associations. By Alan Teck. Financial Institutions and Markets: Money in the Computer Age. By F. P. Thomson. Financial Institutions and Markets: The Management of Cyclical Liquidity of Commercial Banks. By G. Walter Woodworth. International Finance: Trade Liberalization Among Industrial Countries. By Bela Balassa. International Finance: Studies in Trade Liberalization: Problems and Prospects for the Industrial Countries. By Bela Balassa and Associates. International Finance: Monetary Reform and The Price of Gold-Alternative Approaches. Edited by Randall Hinshaw. International Finance: Overseas Manufacturing Investment and the Balance of Payments. By G. C. Hufbauer and F. M. Adler. International Finance: The Open Economy: Essays on International Trade and Finance. Edited by Peter B. Kenen and Roger Lawrence. Public Finance: Illinois Municipal Finance. By Glenn W. Fisher and Robert P. Fairbanks. Public Finance: Budget Concepts for Economic Analysis. Edited by Wilfred Lewis, Jr. Volume24, Issue3June 1969Pages 553-591 RelatedInformation

The Management of Cyclical Liquidity of Commercial Banks.

The Management of Cyclical Liquidity of Commercial Banks.