Is bank liquidity creation procyclical? Evidence from the US

Jijun Niu

Finance Research Letters, 2022, vol. 47, issue PA

Abstract: This paper examines how bank liquidity creation reacts to business cycle fluctuations. Using panel data on US banks, we find that bank liquidity creation is procyclical (i.e., banks create more liquidity during economic expansions and less liquidity during recessions). We also find that both on- and off-balance sheet liquidity creation are procyclical. Our results hold across bank size groups, and suggest that bank liquidity creation can amplify business cycle fluctuations.

Keywords: bank; liquidity creation; business cycle (search for similar items in EconPapers)
JEL-codes: G21 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:47:y:2022:i:pa:s1544612321005420

DOI: 10.1016/j.frl.2021.102603

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