Country Risk, Regulation, and Liquidity Transformation in Palestine and Neighboring Countries

Luis Otero González, Sami Othman Ashour, Jose Antonio Redondo-López and Luis Ignacio Rodríguez Gil

Emerging Markets Finance and Trade, 2018, vol. 54, issue 6, 1375-1390

Abstract: This study analyzes the impact of economic, financial, and political instability on the liquidity transformation of banks operating in unstable environments. Our main goal is to assess the relationship between overall risk in a country and liquidity transformation. With this goal in mind, we use a sample of five Middle Eastern countries during the period 2005–2010. Our results showed that the high-risk environment has a significant and negative impact on both liquidity transformation and the extension of credit. In addition, we conclude that high capital requirements may reduce further lending, while imposing liquidity requirements seems to be a better strategy for enhancing liquidity transformation.

Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:mes:emfitr:v:54:y:2018:i:6:p:1375-1390

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DOI: 10.1080/1540496X.2017.1285224

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