EconPapers    
Economics at your fingertips  
 

Cyclicality of bank liquidity creation

Denis Davydov, Zuzana Fungáčová () and Laurent Weill ()

No 5/2017, BOFIT Discussion Papers from Bank of Finland, Institute for Economies in Transition

Abstract: This paper investigates the cyclicality of bank liquidity creation. Since liquidity creation is a major economic function of banks, their liquidity creation behavior may amplify business cycle fluctuations. Using the methodology of Berger and Bouwman (2009) to compute liquidity creation measures, we analyze the relation between GDP growth and liquidity creation of Russian banks from 2004 to 2015. Detailed quarterly data on a very large sample of banks and coexistence of different bank ownership types (state-owned, domestic private and foreign banks), makes Russia an ideal natural laboratory for study of cyclicality of liquidity creation for banks. We find that liquidity creation of banks is procyclical. We show that the liquidity creation behavior of state-owned banks and foreign banks is similar to that of domestic private banks in terms of procyclicality. We further find that the magnitude of procyclicality is higher for liquidity creation than for lending. Thus, while ownership of banks does not influence the liquidity creation behavior of banks, such behavior can amplify business cycle fluctuations.

JEL-codes: G21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-cis and nep-tra
Date: 2017-03-10
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Published in Published in Journal of International Financial Markets, Institutions & Money, 55, July, 2018, 81–93

Downloads: (external link)
https://helda.helsinki.fi/bof/bitstream/123456789/14610/1/dp0517.pdf (application/pdf)

Related works:
Journal Article: Cyclicality of bank liquidity creation (2018) Downloads
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:bof:bofitp:2017_005

Access Statistics for this paper

More papers in BOFIT Discussion Papers from Bank of Finland, Institute for Economies in Transition Bank of Finland, BOFIT, P.O. Box 160, FI-00101 Helsinki, Finland. Contact information at EDIRC.
Bibliographic data for series maintained by Minna Nyman ().

 
Page updated 2019-04-20
Handle: RePEc:bof:bofitp:2017_005