Bank liquidity creation and systemic risk

Davydov, Denis; Vähämaa, Sami; Yasar, Sara

doi:10.1016/j.jbankfin.2020.106031

Cited by 77 publications

(37 citation statements)

References 51 publications

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“…Research on NPLs has generated increasing interest among policy-makers and academics, especially in the aftermath of the Global Financial Crisis marked by a surge of NPLs in the loan portfolios of banks worldwide (Dimitrios et al, 2016;Ghosh, 2015Jabbouri and Naili, 2019). Likewise, research on the determinants of bank liquidity creation (Berger and Sedunov, 2017;Casu et al, 2019;Davydov et al, 2021;Duan and Niu, 2020;Horvath et al, 2016) have been studied extensively, particularly after the seminal paper by Berger and Bouwman (2009). Nevertheless, academic studies have not investigated the role of liquidity creation in aggravating or mitigating the credit risk that arises from the increase of NPLs rates among banks, specifically for emerging economies found in MENA countries.…”

Section: Effect Of Bank Liquidity Creation On Nplsmentioning

confidence: 99%

“…Thus, bank liquidity creation may reduce NPLs through its "economic-enhancing" role, stimulating economic sectors by financing corporations and households. On the other hand, through the process of liquidity creation, banks may become risky and illiquid (Berger et al, 2019;Berger and Bouwman, 2009;Davydov et al, 2021) and might set lower-lending standards that attract "bad borrowers" (Acharya and Naqvi, 2012;Acharya and Thakor, 2016), increasing NPLs.…”

Section: Effect Of Bank Liquidity Creation On Nplsmentioning

confidence: 99%

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How does bank liquidity creation affect non-performing loans in the MENA region?

Mdaghri¹

2021

IJOEM

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PurposeThe study aims to empirically examine the effect of bank liquidity creation on non-performing loans (NPLs) in the Middle East and North Africa (MENA) region.Design/methodology/approachBerger and Bouwman's (2009) three-step methodology was employed to calculate the level of liquidity creation of a selected sample of 111 commercial banks in ten MENA countries from 2010–2017. Next, the two-step system generalized method of moments (GMM) estimator was used to investigate the linkage between bank liquidity creation and NPLs.FindingsThe results demonstrated a significant negative effect of bank liquidity creation on NPLs in the short and long term, implying that liquidity creation through both on- and off-balance sheet activities decreases NPLs. These findings accord with the “economic-enhancing” view. Furthermore, regression analysis investigated whether this relationship remained similar for Islamic and conventional banks. The results showed that liquidity creation diminishes Islamic and conventional bank NPLs.Research limitations/implicationsThe empirical findings raise several significant policy implications. Bank liquidity creation may decrease rather than increase NPLs, although the process of liquidity creation is viewed as risky by rendering banks more illiquid. Therefore, policy-makers should encourage bank liquidity creation to stimulate the economy. In a robust economy, borrowers are more likely to repay their debts, consequently diminishing banks' NPLs.Originality/valueTo the best of the author's knowledge, the current study is the first to provide empirical evidence on the effect of bank liquidity creation on NPLs in MENA countries.

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Section: Effect Of Bank Liquidity Creation On Nplsmentioning

confidence: 99%

Section: Effect Of Bank Liquidity Creation On Nplsmentioning

confidence: 99%

How does bank liquidity creation affect non-performing loans in the MENA region?

Mdaghri¹

2021

IJOEM

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“…This relationship is robust for informationally opaque banks, financed with a larger share of uninsured sources and in countries with lower deposit insurance coverage. Davydov et al (2021) consider the relationship between bank liquidity creation and systemic risk. The proposed approach is applied to data of US banks showing that liquidity creation decreases systemic risk at the individual bank level after controlling for bank size, asset risk and other bank-specific attributes.…”

Section: Literature Reviewmentioning

confidence: 99%

Measurement of Systemic Risk in the Colombian Banking Sector

Rivera-Escobar

Escobar

Manotas-Duque

2022

Risks

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This paper uses three methodologies for measuring the existence of systemic risk in the Colombian banking system. The determination of its existence is based on implementing three systemic risk measures widely referenced in academic works after the subprime crisis, known as CoVaR, MES and SRISK. Together, the three methodologies were implemented for the case of Colombian Banks during the 2008–2017 period. The findings allow us to establish that the Colombian banking sector did not present a systemic risk scenario, despite having suffered economic losses due to external shocks, mainly due to the subprime crisis. The results and findings show the efficiency of the systemic risk measures implemented in this study as an alternative to measure systemic risk in banking systems.

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“…Financial systemic risk is defined as the possibility of significant fluctuations in the entire financial system (Lehar, 2005), which may cause financial information disruption (Abdymomunov, 2013), financial institution malfunction (Yin et al, 2021), financial liquidity problem (Davydov et al, 2021), and risk contagion (Wu et al, 2021).…”

Section: Financial Systemic Riskmentioning

confidence: 99%

S-shaped transition trajectory and dynamic development frontier of the financial systemic risk research: a multiple networks analysis

Zhou

Chen

2021

Economic Research-Ekonomska Istraživanja

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Financial systemic risk has an impact on the real economy and may trigger a chain reaction in the whole economic system leading to the financial crisis. Many scholars focus on financial systemic risk, but few of them are bibliometric analyses. Therefore, this paper explores the status quo, emerging trends, and transition trajectory through the above analysis method in the research field from 1990 to 2020. Based on the above analysis, we find the following conclusions: (1) The basic conclusions of the most productive countries, institutions, journals, authors, status quo, and the change of hotspots in this research field are presented. (2) The emerging trends in this research field are 'credit risk', 'capital shortfall', 'spill-over', 'spread', 'financial market', 'interconnectedness', 'transmission' in the last three years. (3) The research field of financial systemic risk presents an S-shaped transition trajectory through the local forward, the local backward, the global standard, and the global key-route main path analysis. (4) We find that the most cited authors are not always at the core of the trajectory of financial systemic risk research. The emerging trend 'credit risk' is also recently a core research direction in this research field's transition trajectory.

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Bank liquidity creation and systemic risk

Cited by 77 publications

References 51 publications

How does bank liquidity creation affect non-performing loans in the MENA region?

How does bank liquidity creation affect non-performing loans in the MENA region?

Measurement of Systemic Risk in the Colombian Banking Sector

S-shaped transition trajectory and dynamic development frontier of the financial systemic risk research: a multiple networks analysis

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