The relationship between liquidity risk and probability of default: Evidence from the Euro area

Cucinelli, Doriana

doi:10.22495/rgcv3i1art5

Cited by 14 publications

(18 citation statements)

References 20 publications

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“…The major findings of this research confirm a negative relationship between liquidity risk and bank performance. Another study that focused on the European context was done by Cucinelli (2013). In this study, the author studied the relationship between liquidity risk and probability of default.…”

Section: Literature Reviewmentioning

confidence: 99%

Liquidity Risk and Bank Performance: An Empirical Test for Tunisian Banks

Hakimi

Zaghdoudi

2017

BER

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An important part of banking literature was interested in the relationship between credit risk and bank performance. However, only few studies investigated the association between liquidity risk and bank performance. The aim of this paper is to study the effect of liquidity risk on the Tunisian bank performance. To this end, we used a sample of 10 Tunisian banks over the period 1990-2013. By applying panel data method, precisely random effect regression, results show that liquidity risk decreases significantly Tunisian bank performance. Also, findings indicate that international financial crisis and inflation act negatively and significantly on bank performance.

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Section: Literature Reviewmentioning

confidence: 99%

Liquidity Risk and Bank Performance: An Empirical Test for Tunisian Banks

Hakimi

Zaghdoudi

2017

BER

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“…It includes credit risk, liquidity risk and market risks which contribute to the volatility of financial performance (Tafri et al, 2009 & of liquidity risk management (Otieno & Nyagol, 2016). Financial institution have demonstrated the lack of good forecasting models to manage liquidity risk, which has led to a liquidity spiral and given rise to a sudden deterioration of financial institution balance sheets with consequent difficulties in finding new sources of liquidity on financial markets (Cucinelli, 2013). The inability of insurance firms to raise liquidity can be attributed to a funding liquidity risk that is caused either by the maturity mismatch between inflows and outflows and/or the sudden and unexpected liquidity needs arising from contingency conditions (Duttweiler, 2009).…”

Section: Introductionmentioning

confidence: 99%

Effect of Liquidity Risk, Premium Growth on the Performance of Quoted Insurance Firms in Nigeria: A Panel Data Analysis

Olalekan

2018

amfbr

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This study assesses the effect of liquidity risk on firm performance of listed insurance companies in Nigeria for the period of 2011-2015. The listed insurance firms are twenty Five (25) in numbers out of which a sample of twelve (12) were used for the study. Liquidity risk as the independent variable was proxy with leverage, claim loss ratio and premium growth, while the return on asset was used to proxy firm performance. The study adopts a panel multiple regression techniques and data were collected from secondary source through the annual reports of the firms after controlling for fixed/random effects.The findings of random effect reveal that leverage has significant negative effect on return on assets. The claim loss ratio has insignificant negative influence on return on assets while premium growth has positive and insignificant effect on firm performance of listed insurance companies in Nigeria. It is recommended among others that the managers, shareholders and other stake holders to checkmate and control liquidity risk as it have been found empirically to enhance the quality of the firm’s financial performance.

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“…Although most banks hold more liquid assets against liquid liabilities than strictly required, the fundamental risks remained (Calluzzo and Dong, 2015). Although the results of Cucinelli (2013)’s study show that there is a relationship between the LCR and credit rating in short-term, there is no correlation between the long-term liquidity metrics and a probability of default. Hong et al (2014) observe potential links between Basel III liquidity risk measures and bank failures using a model that differentiates between idiosyncratic and systemic liquidity risks and find that while the LCR has limited effects on bank failures.…”

Section: Literature Discussion On Liquidity Managementmentioning

confidence: 92%

Need for calibration: applying a maximum threshold to liquidity ratio for Islamic banks

Dolgun

Mirakhor

2020

IMEFM

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Purpose The purpose of this paper is to highlight the effects of liquidity regulations on Islamic banking using Turkey as a case study. It recommends an alternative mechanism using capital market standards for liquidity requirement of Islamic banks to mitigate certain risks. Design/methodology/approach The paper evaluates the correlation between cash and profit and between liquidity coverage ratio and capital adequacy ratio of participating banks in Turkey. Findings Islamic banks hold higher cash than they should. The paper suggests a maximum liquidity ratio for Islamic banks. Applying a cap to the liquidity coverage ratio will impose discipline on Islamic banks to manage their assets appropriately as well as to encourage their financial intermediation to the real sector. In addition, the authors argue that even if the cash outflows from investment account on the right side of Islamic banks’ balance sheets are included in the short-term projection, they should not be included in the denominator of the liquidity coverage ratio. Practical implications The current Basel requirements and Islamic Financial Services Board standards are disincentives to Islamic banks to provide risk-sharing or partnership-based investments and services to their customers and depositors. Effective legal and regulatory framework and supervisory oversight need to take into account the difference between the risk profile of a typical Islamic bank and a conventional bank. Originality/value Although it is well accepted that without adequate regulatory involvement it would not be possible to control and mitigate the risks related to Islamic banking financial intermediation, there should be a balance between the growth and stability of the industry. The regulatory involvement that satisfies this balance would be welcome.

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The relationship between liquidity risk and probability of default: Evidence from the Euro area

Cited by 14 publications

References 20 publications

Liquidity Risk and Bank Performance: An Empirical Test for Tunisian Banks

Liquidity Risk and Bank Performance: An Empirical Test for Tunisian Banks

Effect of Liquidity Risk, Premium Growth on the Performance of Quoted Insurance Firms in Nigeria: A Panel Data Analysis

Need for calibration: applying a maximum threshold to liquidity ratio for Islamic banks

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