Cyclicality of bank liquidity creation

Davydov, Denis; Fungáčová, Zuzana; Weill, Laurent

doi:10.1016/j.intfin.2018.02.014

Cited by 49 publications

(53 citation statements)

References 34 publications

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“…The study also found that aggregate LC declines during and five quarters after the crisis. In a similar kind of study, Davydov et al (2018) found that LC is pro-cyclical, that is, LC may amplify business cycles. A similar kind of proof was provided by Berger and Sedunov (2017) which concluded that LC positively affect real economic output.…”

Section: Literature Review and Research Hypothesismentioning

confidence: 90%

“…Some of the studies which are more relevant to this study are the ones which explore the relationship between LC and economic output (Berger & Sedunov, 2017; Chatterjee, 2018; Davydov et al, 2018; Fungacova et al, 2013; Fungacova et al, 2013). Chatterjee (2018) used LC as a predictor of recession and found that lower on-balance sheet LC can predict recession four quarters before its occurrence.…”

Section: Literature Review and Research Hypothesismentioning

confidence: 99%

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What Are The Channels Through Which Bank Liquidity Creation Affects GDP? Evidence From an Emerging Country

Umar

Sial

2021

SAGE Open

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Gross domestic product (GDP) depends on myriad factor and financial intermediaries especially banks play a very important role in economic growth and development of a country. They not only lend loans rather also generate liquidity—which is very important for the smooth functioning of an economy. Therefore, this study explores the channels through which bank liquidity creation affects GDP. It uses the data from listed and unlisted Chinese banks ranging from the year 2006 to 2017. The results of the analysis reveal that the liquidity creation by Chinese banks significantly negatively affects economic output. The magnitude of the impact of small-bank liquidity creation is greater than the large banks. Variation in the GDP is explained by current and previous year’s liquidity creation. Cat-fat measure of liquidity creation affects GDP directly as well as through consumption, investment, government expenditure, and net exports channels; however, cat-nonfat measure affects economic output directly and through all aforementioned channels except net exports. Overall, the findings support the hypothesis that liquidity creation affects the economy directly as well as through different channels.

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Section: Literature Review and Research Hypothesismentioning

confidence: 90%

Section: Literature Review and Research Hypothesismentioning

confidence: 99%

What Are The Channels Through Which Bank Liquidity Creation Affects GDP? Evidence From an Emerging Country

Umar

Sial

2021

SAGE Open

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“…Thus, we continue to allow for macroeconomic factors (the annual growth rate of GDP and the annual rate of inflation) to serve as control variables. A number of studies have analyzed the banks' loan allocation structure in relation to the business cycle of the economy, most leading to the conclusion about the positive correlation between bank lending and economic growth (Bertay et al, 2015;Davydov et al, 2018;Zins & Weill, 2018). Meanwhile, one could believe that an economy with low inflation rate is not more likely to support enterprises in production and business, which creates barriers for banks in expanding credit operations (Louhichi & Boujelbene, 2017).…”

Section: Other Variablesmentioning

confidence: 99%

Bank diversification and the effectiveness of monetary policy transmission: Evidence from the bank lending channel in Vietnam

Dang

2021

Cogent Economics & Finance

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The study empirically examines the impact of bank diversification on monetary policy transmission through the bank lending channel. Based on monetary and bank-level data from 2008 to 2018 in Vietnam, a diverse environment of monetary policy tools, results show that bank diversification significantly drives the bank lending channel in different ways. Using the changes in lending rates and policy rates as monetary policy indicators, the study posits strong evidence to indicate that the transmission of the bank lending channel becomes weaker as banks get more involved in non-traditional activities. In contrast, we observe that bank diversification promotes the effectiveness of monetary policy transmission by the intervention of foreign exchange reserves, with no clear-cut link in the case of open market operations. Further analysis indicates the weakening effect is almost confirmed in all bank groups, while the strengthening effect works only for banks with large capital buffers. In brief, the results suggest that monetary authorities should be vigilant when they are strongly encouraging bank diversification. Besides, they also need to choose the appropriate monetary tools to apply and establish specific policies for different groups of banks.

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“…Previous work provides substantial evidence of the relationships between liquidity formation and regulatory capital (Distinguin et al, 2013; Fu et al, 2016; Horváth et al, 2014; Xie, 2016), liquidity creation and economic growth (Berger & Sedunov, 2017), liquidity creation and government intervention (Berger et al, 2016), liquidity creation and bank governance (Díaz & Huang, 2017) liquidity, capital and risk (Mahdi & Abbes, 2018), and liquidity and credit risk (Hassan et al, 2019), as well as the cyclicality of liquidity creation (Davydov et al, 2018). There exists, however, no study that examines the combined effect of capital requirements and ownership structure on banks’ liquidity creation in emerging Asian economies.…”

Section: Introductionmentioning

confidence: 99%

The Role of Regulatory Capital and Ownership Structure in Bank Liquidity Creation: Evidence From Emerging Asian Economies

et al. 2021

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We examine the effect of regulatory capital and ownership structure on banks’ liquidity creation in emerging Asian economies. We find a positive association between regulatory capital and bank liquidity creation, which is consistent with the risk-absorption hypothesis. Bank size has a positive relation with liquidity creation, implying that large banks have more capacity to create liquidity as they enjoy more of the safety net provided by lenders of last resort in the event of crisis, the advantage of reputational benefit, and easier access to external market funding. The negative effect of the bank funding structure is that, as the subordinate debt is typically uninsured, higher funding costs lead banks to reduce liquidity creation. The results imply that an increase in interest rates worsens liquidity creation. For ownership structure, the results show the significance of the impact of ownership concentration on liquidity creation. Banking institutions having higher equity and higher concentration ownership leads to improved liquidity creation.

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Cyclicality of bank liquidity creation

Cited by 49 publications

References 34 publications

What Are The Channels Through Which Bank Liquidity Creation Affects GDP? Evidence From an Emerging Country

What Are The Channels Through Which Bank Liquidity Creation Affects GDP? Evidence From an Emerging Country

Bank diversification and the effectiveness of monetary policy transmission: Evidence from the bank lending channel in Vietnam

The Role of Regulatory Capital and Ownership Structure in Bank Liquidity Creation: Evidence From Emerging Asian Economies

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