Determinants of different types of bank liquidity: evidence from BRICS countries

Muhammad Umar and Gang Sun

China Finance Review International, 2016, vol. 6, issue 4, 380-403

Abstract: Purpose - The purpose of this paper is to explore the determinants of three different types of bank liquidity: funding liquidity, liquidity creation, and stock liquidity in emerging markets. Design/methodology/approach - It uses an extensive set of data from all the listed banks of Brazil, Russia, India, China, and South Africa, collectively known as the BRICS countries, spanning the period 2002-2014. Multiple linear regression has been used to estimate the coefficients of the determinants. Findings - In case of emerging markets, bank size is not a determinant of different types of liquidity, except funding liquidity. Besides, the recent financial crisis had an impact on funding liquidity as well as “cat nonfat” measure of liquidity creation but it did not affect “cat fat” measure and stock liquidity. The variation in funding liquidity is also explained by the profitability and the riskiness of the bank. Effective interest rate, national savings rate, and inflation rate are also the determinants of funding liquidity. Bank-specific determinants of liquidity creation include bank leverage and profitability, and macroeconomic determinants include stock market index, effective interest rate, and unemployment rate. The variation in stock liquidity of the bank is explained by profitability and price of stocks, trading volume, volatility of stock returns, and percentage change in real gross domestic product. Neither market capitalization nor stock market index is the determinant of stock liquidity of the banks. Research limitations/implications - This study uses the data from publically listed banks only. Practical implications - The findings of this study may be used by the policy makers and bank managers in the emerging markets to design better policies and to strengthen the banking system to avoid financial turmoil in future. Originality/value - Most of the existing studies focus on bank liquidity in developed countries and studies aiming on emerging countries are rare. The existing studies focus more on funding liquidity and liquidity creation but to the best of the authors’ knowledge, none of the studies analyze the determinants of banks’ stock liquidity. So, this study bridges the above mentioned gaps by focusing on bank liquidity in emerging markets, and exploring the determinants of the stock liquidity of the banks.

Keywords: Emerging economies; Banks; Stock liquidity; BRICS countries; Liquidity creation; Funding liquidity; G21; G28 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:cfripp:cfri-07-2015-0113

DOI: 10.1108/CFRI-07-2015-0113

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