Liquidity creation and bank profitability

Ying Duan and Jijun Niu

The North American Journal of Economics and Finance, 2020, vol. 54, issue C

Abstract: This paper examines the effect of liquidity creation on bank profitability. Using a panel of US banks, we find that liquidity creation is associated with higher profitability. This result holds during normal times and the financial crisis, and for banks of different sizes. When we decompose liquidity creation into its individual components, we find that liability-side and off-balance sheet liquidity creation are positively related to profitability, while asset-side liquidity creation is negatively related to profitability.

Keywords: Bank; Liquidity creation; Profitability (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:54:y:2020:i:c:s1062940820301479

DOI: 10.1016/j.najef.2020.101250

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