BANK LIQUIDITY RISK: ANALYSIS AND ESTIMATES

Research Journal of Economics Business and Ict, 2012

2019

The recent financial crisis of 2007-2008 highlighted the important role of liquidity in the banking system. Financial markets around the world have run out of liquidity and many financial institutions have gone bankrupt due to liquidity problems. Nevertheless, liquidity remains a very complex concept to define because of its polymorphic character. Only recently has the literature focused on defining the notion of liquidity and its different forms and the interactions that may exist between them. This paper aims to present a synthesis of reflections on banking liquidity. First, it discusses the different theoretical approaches to the concept and typology of the liquidity concept. Then, it presents the different liquidity risks. Finally, it discusses the main theoretical underpinnings of interactions between types of liquidity.

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.

Maandblad Voor Accountancy en Bedrijfseconomie

Following the financial crisis, quantitative liquidity risk regulation was introduced by means of the Liquidity Coverage Ratio (LCR). This literature study aims to investigate whether the introduction of the LCR leads to better liquidity risk management in banks. It elaborates on the drivers and definition of liquidity risk as well as the history, benefits and goals of this regulation. It also delves into the exact composition of the ratio and the assumptions used. The impact on bank lending as well as banks' business model and risk management is addressed, as well as the interaction with monetary policy operations and capital regulation. This paper then describes the operational differences that were observed after the implementation, and behavioral aspects. We also address the Net stable Funding Ratio (NSFR) and the discussion on interaction between the two indicators and possible redundancy. We have found that the introduction of the LCR leads to better management of liquidit...

2013

Banks, as the most important financial institutions, have a determinant role in circulating currency and wealth of the society and enjoy a special position in financial system. Therefore, the desired and effective performance of banks can create important effects on the development of different economic sectors and increase in the quantitative levels of the output. This study attempts to examine the effect of liquidity risk on the performance of commercial banks using of panel data related to commercial banks of Iran during the years 2003 to 2010. In the estimated research model, two groups of bank-specific variables and macroeconomic variables are used. The results of research show that the variables of bank's size, bank's asset, gross domestic product and inflation will cause to improve the performance of banks while credit risk and liquidity risk will cause to weaken the performance of bank.

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.

International Journal of Social Sciences and Education Research, 2016

This study is focused on liquidity risk analysis in order to identify if this risk affects the profitability of Commercial Banks operating in Albania. The paper includes the identification, the analysis and the management of this type of risk. Through numerical analysis it will be studied the quantitative effect of liquidity risk on the profitability of commercial banks in Albania during the period 2005-2015. Following the study, liquidity risk is expected to have a considerable effect on the profitability of Commercial Banks operating in Albania. The analysis is based on an empirical study with secondary qualitative and quantitative data. This study provides a contribution within the identification of liquidity risk factors that affect more the profitability of the Albania Banks and the finding of a scientific solution in order to manage this risk in a more efficient way. The recommendations derived from this study will serve to young researchers of academic area and professional field. Also, this paper will create new discussions on risk management instruments used in the Albanian banking system.

The aim of this study was to assess liquidity risk management (LRM) practices in Jordanian Islamic and conventional banks during the period (2013-2017). Data used were comprised from six banks, which consisted of three Islamic and three conventional banks in Jordan. Data from the banks financial annual reports covering from 2013-2017 were used to calculate the ratios used as a substitute for liquidity risk in conventional banking as well as Islamic banking in Jordan. The study found the relationship of the size of financial institution, return on asset, return on equity, and capital adequacy ratio with liquidity risk measurement is positive and important both in Islamic banks and conventional banks. Researchers found the practices of LRM are not optimal, yet were based on some considerations explained in this study. Further, progressive actions needs to be taken by the regulators and the banking players to improve the LRM practices.

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.