LIQUIDITY RISK IN BANKS - A NEW ZEALAND PERSPECTIVE

2004

We would like to thank Brian Madigan and participants at the NBER conference on "Risks of Financial Institutions," Oct. 2004 (Woodstock, VT) for their comments, Gretchen Weinbach for help with the data and Kristin Wilson for her excellent research assistance. All errors are ours. Any views expressed represent those of the authors only and not necessarily those of the Federal Reserve Bank of New York or the Federal Reserve System. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.

International Business & Economics Research Journal (IBER), 2015

This article is based on empirical research on the relationship between liquidity and bank performance for South African banks for the period between 1998 and 2014. The study employed the Autoregressive Distributed Lag (ARDL)-bound testing approach and the Ordinary Least Squares (OLS) to examine the nexus between net interest margin and liquidity. Liquidity in this article is viewed in the context of the market liquidity risk and funding liquidity risk. The study observes that there is a negative significant deterministic relationship between net interest margin and funding liquidity risk. However, there is an insignificant co-integrating relationship between net interest margin and the two measures of liquidity. Based on this research it is recommended that further research should be conducted to investigate liquidity in the context of asset- liability mismatches. Financial institutions also should realise that liquidity is a short-run phenomenon that has to be analysed as such.

2024

A comprehensive investigation into the multifaceted problem of liquidity risk and the significant implications it has for the financial stability of the Bangladeshi banking sector is presented in this thesis. In light of the fact that the banking sector plays a very important part in promoting economic expansion within the nation, it is absolutely necessary for commercial banks to have an efficient and effective management of liquidity risk in order to guarantee their stability and operational efficiency. Between the years 2013 and 2022, the primary goals of this research are to identify and analyze the key determinants of liquidity risk, as well as to evaluate the impact that these determinants have on the liquidity position of ten commercial banks that have been chosen from Bangladesh. The research makes use of a robust quantitative methodology and relies on secondary data collected from the annual financial statements of the banks during this time period. It integrates macroeconomic variables and bank-specific characteristics by employing a variety of statistical tools, including regression analysis According to the Pooled OLS and GLS models, CAR has a notable adverse effect on the liquidity situation of banks, as assessed by the Advance to Deposit Ratio (ADR). CAR is one of the three main factors that determine liquidity risk. Increased capital adequacy ratio (CAR) results in less liquidity risk. The Loans/Advances to Total Assets ratio exhibits a negative correlation with liquidity risk, as indicated by the GLS model. Increasing the ratio of loans to total assets decreases the level of liquidity risk. The association between GDP and liquidity risk (ADR) is positively significant in both Fixed Effect and Random Effect models. Banks have more liquidity risk as a result of higher economic growth. The most important findings indicate that higher capital adequacy ratios, efficient loans/advances to total assets ratios, and specific macroeconomic factors all have a significant impact on liquidity risk. Bigger banks and those with higher leverage ratios are more likely to have increased liquidity risk, contrary to the conventional beliefs that have been prevalent. In order to improve liquidity management practices, the study highlights the significance of efficient asset allocation, prudent financing, and strategic expansion. Additionally, the research highlights the importance of banks placing a high priority on the satisfaction of their customers and striving to maintain a strong reputation in order to reduce the impact that liquidity risk has on their financial stability. Furthermore, it emphasizes the significance of cultivating a culture of risk awareness and continuous learning within the banking sector in order to guarantee that financial institutions are better equipped to navigate the complexities of liquidity risk management. Maintaining optimal levels of capital adequacy, effectively managing loans and advances, closely monitoring macroeconomic factors, regularly conducting stress tests, and improving disclosure and transparency practices are some of the recommendations that have been made. Due to the fact that it relies on secondary data from a sample of ten banks over a specific ten-year period, the study is limited in its ability to understand liquidity risk in emerging economies, despite the fact that it makes a significant contribution to this understanding. As a result, the sample size should be increased in subsequent research, and primary data should be incorporated in order to validate the findings. As a conclusion, this thesis presents a comprehensive analysis of the factors that determine the level of liquidity risk in Bangladeshi commercial banks. It also offers recommendations that can be implemented to improve the banks' practices regarding the management of liquidity risk, thereby making a contribution to the stability and effectiveness of the financial system in the country.

The aim of the paper is to analyse the current liquidity risk management techniques and supervisory approaches, in order to identify how both could be improved in the light of the recent market turmoil caused by the sub-prime crisis and potential sources of instability directly connected with the 'originate-to-distribute' business model. Current liquidity risk models demonstrated to undervalue extreme events affecting funding and market risk in global scenarios. At the same time, regulatory and supervisory regimes continue to be nationally based and substantially differentiated, pointing out significant differences which, in some circumstances, could generate regulatory arbitrages, as well as the effectiveness of supervisory actions could be reduced. The research, therefore, intends to highlight the most significant features to consider in order to implement an effective liquidity risk management and to achieve a more integrated supervisory framework for global financial markets. In this perspective, the effort of a regulatory authority to validate the adoption of internal models for liquidity risk is also investigated. Last, the paper analyses the most important lessons concerning liquidity management from recent episodes of stress.

Journal of Economics and Behavioral Studies, 2017

In an effort to strengthen bank liquidity-risk management practices, the Basel Committee proposed new liquidity requirements for banks in 2010 under the Basel III framework. However, despite the good intentions of the liquidity requirements the new regulations are likely to present some challenges for banks in the course of managing their liquidity. However, before any inference can be made about the possible implications of the liquidity standards on bank liquidity management practices, it is imperative to have insight into the current liquidity management strategies of banks. This paper seeks to determine the current liquidity management practices of banks in South Africa by examining whether South African banks have target liquidity levels which they pursue and also by determining the variables that drive bank liquidity ratios. The study sample comprised six commercial banks operating in South Africa over the period 1993 to 2009. For analysis, a partial adjustment model was devel...

International Journal of Business Continuity and Risk Management

One of the main purposes of banks' risk management is to control credit and liquidity risk which are the main sources of risk. This research explores factors affecting liquidity risk of commercial banks operating in Jordan, spanning from 2003 through 2017. The sample of the study includes all commercial banks by employing pooled OLS and panel 2SLS econometric techniques. Findings of the study show that bank size, return on assets (ROA), capital adequacy ratio (CAR), risk, non-performing loans (NPL), T-equality and T-liability have a positive impact on liquidity risk. While return on equity (ROE) shows the negative and significant impact on the liquidity risk. This study suggests that authorities should trace and monitor the determined internal factors that have a negative impact on the liquidity of banks to minimise bank run chances.

This paper investigates the relationship between the two major sources of bank default risk: liquidity risk and credit risk. We use a sample of virtually all US commercial banks during the period 1998-2010 to analyze the relationship between these two risk sources on the bank institutional-level and how this relationship influences banks' probabilities of default (PD). Our results show that both risk categories do not have an economically meaningful reciprocal contemporaneous or time-lagged relationship. However, they do influence banks' probability of default. This effect is twofold: whereas both risks separately increase the PD, the influence of their interaction depends on the overall level of bank risk and can either aggravate or mitigate default risk. These results provide new insights into the understanding of bank risk and serve as an underpinning for recent regulatory efforts aimed at strengthening banks (joint) risk management of liquidity and credit risks.

Research Journal of Economics Business and Ict, 2012

International journal of business and economics, 2021

This article discusses the improvement of liquidity regulation mechanisms for commercial banks in developed countries. This article will consider such concepts as “liquidity”, “liquidity management”, “liquidity management mechanism”, and the existing approaches to its definition, as well as the bank’s information infrastructure, which is necessary and sufficient for the implementation of effective liquidity management. It should be noted that the emphasis will be placed on the aspects and approaches to liquidity management directly by the commercial bank itself, and not on prudential or other norms aimed at assessing the risk of a bank losing its liquidity. The purpose of this article is to consider the existing approaches to liquidity management, their advantages and disadvantages, for possible use in the future as basic ones for the planned study.