The Growth of Social Banks, Investment Restrictions, and Excess Liquidity Risk

Susanne Homölle, Nikolas Höhnke, Ulf Hübenbecker and Philipp Winskowski

Chapter 5 in Modern Finance and Risk Management:Festschrift in Honour of Hermann Locarek-Junge, 2022, pp 79-101 from World Scientific Publishing Co. Pte. Ltd.

Abstract: Social banks are expected to have excess liquidity issues, caused by the combination of massive growth of deposits and their self-restricted investment selection. In this study, we differentiated between social banks with moderate and those with strict self-restrictions. As strict social banks are expected to attract more depositors, excess liquidity issues might be a larger problem of this type of social bank. Comparing the development of deposits and excess liquidity indicators between both types based on a data set of 23 European social banks, we found that the deposits of strict social banks have indeed grown much stronger and that these banks show lower ability to transform deposits into impact assets. Moderate social banks seem to be able to easier compensate low loans-to-deposits ratios with suitable investments in shares and bonds. Liquidity surplus of (strict) social banks might decrease their efficiency, but does not seem to infringe their going concern.

Keywords: Finance; Risk Management; Commodities; Energy Finance; Risk; Cryptocurrencies; Asset Management; Banking; Behavioral Finance; Behavioural Finance; Markowitz; Portfolio Selection; Asset Allocation; Crowdfunding; COVID; Pandemic; Corona; Investment Strategies; Low-Risk Investments; Social Banks; Excess Liquidity; Cost of Capital; Utilities; Network Industries; Private Equity; Small and Medium-Sized Enterprises; Black Swan; Statistical Inference; Maximum Likelihood; Bayesian Methods; Tail Risks; Conditional Value-at-Risk; Tail Nonlinearly Transformed Risk; Capital Constraints; Bank Regulation; Subjective Risk Assessment; Expert Knowledge; Model Risk; Risk Factors; Option Pricing; Volatility; Resilience; Supply Chains; Disruption; Systemic Risk; Oil; Renewable Energies; Corporate Risk Management; Power Purchase Agreements; Gold; Precious Metals; Dynamic Correlation; Mixed Data Sampling (search for similar items in EconPapers)
JEL-codes: G11 G3 G32 G4 (search for similar items in EconPapers)
Date: 2022
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