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How liquid are banks: Some evidence from the United Kingdom

Meilan Yan, Dalu Zhang, Maximilian J B Hall and Paul Turner
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Meilan Yan: Hull University Business School, University of Hull
Dalu Zhang: Hull University Business School, University of Hull
Maximilian J B Hall: Hull University Business School, University of Hull
Paul Turner: Hull University Business School, University of Hull

Journal of Banking Regulation, 2017, vol. 18, issue 2, 163-179

Abstract: Abstract This article uses quantitative balance sheet liquidity analysis, based upon modified versions of the BCBS and Moody’s models, to provide indicators which would alarm the UK banks’ short- and long-term liquidity positions, respectively. These information will also underpin other research related liquidity risk to banks’ lending and performance. Our framework accurately reflect UK banks’ liquidity positions under both normal and stress scenarios based on the consistent accounting information under International Financial Reporting Standards. It has significant contribution on Basel III liquidity ratios calculation. The study also presents fundamental financial information to facilitate analysis of banks’ business models and funding strategies. Using data for the period 2005–2010, we provide evidence that there have been variable liquidity strains across the UK banks in our sample. The estimated results show that Barclays Bank was the only bank to maintain a healthy short-term liquidity position throughout the sample period; while HSBC remained liquid in the short term, in both normal and stress conditions, except in 2008 and 2010. RBS, meanwhile, maintained healthy long-term liquidity positions from 2008 after receiving government injections of capital. And Santander UK was also able to post healthy long-term liquidity positions, except in 2009. However, the other four banks, the Bank of Scotland, Lloyds TSB, NatWest and Standard Chartered, proved illiquid, on both a short-term and long-term basis, throughout the 6-year period, with NatWest being by far the worst performer.

Keywords: UK balance sheet analysis; liquidity coverage; net cash capital (search for similar items in EconPapers)
Date: 2017
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