An Empirical Analysis of the Relationship Between Capital, Market Risks, and Liquidity Shocks in the Banking Industry

Ravinder Rena and Kamuinjo Albert V.
Additional contact information
Kamuinjo Albert V.: University of Namibia, Namibia

Studia Universitatis Babeș-Bolyai Oeconomica, 2022, vol. 67, issue 2, 67-83

Abstract: This study explores the relation between capital, market risks and banks’ liquidity conditions. In estimating the SVAR regression model, Granger causality, impulse-response functions and forecast error variance decomposition were employed and used for estimation of the results. The data sample comprised of commercial banks over the 2009 to 2018 period. The empirical results showed that liquidity shocks are caused by a combination of structural shocks. The Granger causality, impulse-response functions and forecast error variance decomposition documented that sensitivity to market risk is the key factor affecting liquidity conditions in the banking sector in the long run. In addition, the empirical results showed that capital adequacy has minimal impact on liquidity conditions in the short run. The reforming rate to sensitivity to market risk policies, capital adequacy policies and liquidity policy measures can be valuable policy tools to minimize liquidity shortages and avoid insolvent banks.

Keywords: capital; market risks; liquidity shocks; banking industry; financial stability (search for similar items in EconPapers)
JEL-codes: C40 C52 E51 E58 G32 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.2478/subboec-2022-0010 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:vrs:subboe:v:67:y:2022:i:2:p:67-83:n:5

DOI: 10.2478/subboec-2022-0010

Access Statistics for this article

Studia Universitatis Babeș-Bolyai Oeconomica is currently edited by Dumitru Matis

More articles in Studia Universitatis Babeș-Bolyai Oeconomica from Sciendo
Bibliographic data for series maintained by Peter Golla ().