Can Bank Improve Performance by Creating Liquidity?

• Main Authors: Yuan-yang Sung, 宋遠揚
• Other Authors: Yi-kai Chen
• Format: Others
• Language: en_US
• Published: 2010
• Online Access: http://ndltd.ncl.edu.tw/handle/93201257492710679690

碩士 === 國立高雄大學 === 經營管理研究所 === 98 === In general, bank’s traditional lending business plays an important role as a liquidity backup of the financial system. However, the non-traditional business, such as activities in non-interest incomes, has risen since its high profitability. Even some banks pay more attention on it than the traditional business. This phenomenon inspires us to examine whether the function of liquidity backup has no longer linked with bank performance anymore. This study introduces the sense of liquidity creation by Berger & Bouwman (2009) to conduct our research. The results show that the liquidity creation can not only improve the performance and stabilize the profitability, but improve the risk-adjusted return. Evidences are differ from the financial systems. Liquidity creation may enhance bank profit abilities in market-based system but is harmful in bank-based system. Though the liquidity creation cannot bring profitability to bank in the bank-based system, the stabilizing function still works causing a positive risk-adjusted return. Hence the importance of liquidity creation as a stabilization mechanism is undoubted.