Bank Liquidity Risk and Performance: A Cross-Country Analysis

• Main Authors: Chuan-Yi Yeh, 葉顓儀
• Other Authors: Yi-Kai Chen
• Format: Others
• Language: en_US
• Published: 2009
• Online Access: http://ndltd.ncl.edu.tw/handle/30500595540617933889

碩士 === 國立高雄大學 === 金融管理學系碩士班 === 97 === The aim of this study is to employ alternative liquidity risk measures besides liquidity ratio, and to investigate the causes of liquidity risk (causes of liquidity risk model), using an unbalanced panel dataset of 12 advanced economies commercial banks over the period 1994-2006. Besides, we estimate the causes of liquidity risk model through the fixed effects regression. In addition, we further investigate the relationship between bank liquidity risk and performance (bank liquidity risk and performance model). In our study, we regard liquidity risk as an endogenous determinant of bank performance. Thus, we apply panel data instrumental variables regression, using two stage least squares (2SLS) estimators to estimate bank liquidity risk and performance model. We find that liquidity risk is the endogenous determinant of bank performance. The causes of liquidity risk include components of liquid assets and dependence on external funding, supervisory and regulatory factors and macroeconomic factors. Besides, we also find that liquidity risk may lower bank profitability (return on average assets and return on average equities) because of higher cost of fund, but increase bank’s net interest margins. Besides, we classify countries as bank-based or market-based financial system. The empirical results show that liquidity risk is negatively related to bank performance in market-based financial system; however, it has no effect on bank performance in bank-based financial system.