Does bank capital reduce liquidity creation?

Joshua Evans, Mamiza Haq

Research output: Contribution to journalArticlepeer-review

13 Citations (Scopus)

Abstract

This paper investigates the relationship between bank capital and liquidity creation against the backdrop of the 2007–2008 financial crisis. Analyzing an unbalanced panel of 11,617 U.S. commercial banks from 1996 to 2016, we find a negative association between regulatory capital and on-balance-sheet liquidity creation, but positive associations for small banks and after the financial crisis. Further, we observe lower liquidity creation among banks that participated in the Troubled Asset Relief Program (TARP). The results are largely robust to several alternate variable proxies and model specifications. Our findings suggest that “one-size-fits-all” policy may have some unintended consequences for banks.

Original languageEnglish
Article number100640
Number of pages28
JournalGlobal Finance Journal
Volume54
Early online date31 Oct 2022
DOIs
Publication statusPublished - 1 Nov 2022
Externally publishedYes

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