Analysis of the Balance Sheet Liquidity in the Digital Age

2021 ◽  
pp. 45-57
Author(s):  
Liudmyla Lakhtionova
Keyword(s):  
Balance Sheet ◽  
Digital Age ◽  
Balance Sheet Liquidity

Bank capital and liquidity creation: evidence of relation from India

2017 ◽  
Vol 11 (2) ◽  
pp. 152-166 ◽  
Author(s):  
Muhammad Umar ◽  
Gang Sun ◽  
Muhammad Ansar Majeed
Keyword(s):  
Balance Sheet ◽  
Capital Requirements ◽  
Financial Fragility ◽  
Crowding Out ◽  
Bank Capital ◽  
Content Type ◽  
Crisis Period ◽  
Balance Sheet Liquidity ◽  
Indian Banks ◽  
The Impact

Purpose This study analyzes the impact of changes in bank capital on liquidity creation. More specifically, it tests “financial fragility – crowding out” and “risk absorption” hypotheses for Indian banks. Design/methodology/approach It uses the data of 136 listed and unlisted banks, ranging from the year 2000 to 2014. The analysis is based on panel data techniques. Findings There is negative relationship between narrow measure of bank liquidity creation and capital. Therefore, in the case of India, “financial fragility – crowding out” hypothesis holds for “cat nonfat” measure of liquidity creation. However, there is no relationship between “cat fat” measure of liquidity creation and capital, except for listed banks, and the banks in the pre-crisis period. In these two cases, “risk absorption” hypothesis holds. Furthermore, none of the hypotheses holds in the post-crisis period. Practical implications The higher capital requirements posed by the Basel III will result in lower on-balance-sheet liquidity creation, which may result in lower profitability for the banks. However, increase in capital does not affect off-balance-sheet liquidity creation, rather enhances it in case of listed banks. So, the managers may use risky off-balance-sheet liquidity creation to improve profitability. Therefore, the regulators must be vigilant to the off-balance-sheet activities of banks to avoid banking turmoil. Originality/value To the best of authors’ knowledge, this is the first study to explore which hypothesis regarding the relationship between bank capital and liquidity creation holds for Indian banks. It contributes to the existing literature by providing the empirical evidence that “financial fragility – crowding out” hypothesis holds for on-balance-sheet liquidity creation and “risk absorption” hypothesis holds for listed banks. It also points to the new direction that neither of the hypotheses holds in the post-crisis period in India.

scholarly journals QUALITY INVESTING IN CEE EMERGING MARKETS

2014 ◽  
Vol 12 (2) ◽  
pp. 159-180 ◽  
Author(s):  
Adam Zaremba
Keyword(s):  
Balance Sheet ◽  
Quality Characteristics ◽  
Eastern European ◽  
Liquidity Premium ◽  
Cross Sectional ◽  
Bid Ask Spread ◽  
Balance Sheet Liquidity ◽  
Eastern European Countries ◽  
Profitability Premium ◽  
Monotonic Relation

Using sorting, cross-sectional tests, regression, and tests of a monotonic relation, the study examines the return patterns related to seven distinct quality characteristics: accruals, bid-ask spread, balance sheet liquidity, profitability, leverage, payout ratio and turnover. The investigation of more than 1.300 stocks from 11 Central and Eastern European countries for the period 2002–2014 documents a strong gross-profitability premium and an inverted liquidity premium. Profitable and not heavily leveraged companies provide a partial hedge against market distress. Finally, the paper proposes quality spreads as a forecasting tool and shows that they have predictive abilities over quality premiums related to leverage, profitability and bid-ask spread.

scholarly journals Determinants of Off-Balance Sheet (OBS) Activities: A Case of Selected Retail Banks in Malaysia

2019 ◽  
Vol 14 (1) ◽  
pp. 95-113
Author(s):  
Oladokun Nafiu Olaniyi ◽  
◽  
Shamsul Kamariah Abdullah ◽  
Charmele Ayadurai ◽  
Keyword(s):  
Credit Risk ◽  
Financial Institutions ◽  
Financial Stability ◽  
Generalized Method Of Moments ◽  
Balance Sheet ◽  
Policy Implications ◽  
Risk Transfer ◽  
Credit Risk Transfer ◽  
Balance Sheet Liquidity ◽  
The Stability

The present paper examines factors influencing the Off-Balance Sheet activities of selected commercial banks in Malaysia for the period 2004- 2014. OBS activities are an integral part of financial institutions in response to the needs of businesses for different types of guarantee that have conflicting implications on the stability of financial institutions. Data collected on selected banks from the Bankscope database was analyzed using the Generalized Method of Moments (GMM) regression. Specifically, the study built its analysis on three main recognized determining factors namely: (1) liquidity motives, (2) credit risk transfer motive, (3) profitability motives, and (4) capital arbitrage motive. The findings thus suggest that the selected banks mainly used OBS instruments for capital arbitrage purpose, enhancing operational efficiency and managing loan portfolio risks. The findings further suggested that its usage for capital arbitrage purposes may undermine the regulatory measures of accurately estimating and monitoring the risk of banks. The findings thus offer significant practical and policy implications that can help to enhance financial stability. Keywords: off-balance sheet, liquidity, credit risk transfer, profitability, capital arbitrage

scholarly journals Bank Liquidity Hoarding and the Financial Crisis: An Empirical Evaluation

2021 ◽  
Author(s):  
Jose M. Berrospide
Keyword(s):  
Financial Crisis ◽  
Asset Management ◽  
Global Financial Crisis ◽  
Balance Sheet ◽  
Empirical Evaluation ◽  
Bank Lending ◽  
Supporting Evidence ◽  
Loan Loss ◽  
Precautionary Motive ◽  
Balance Sheet Liquidity

I test and find supporting evidence for the precautionary motive hypothesis of liquidity hoarding for U.S. commercial banks during the global financial crisis. I find that banks held more liquid assets in anticipation of future losses from securities write-downs. Exposure to securities losses in their investment portfolios and expected loan losses (measured by loan loss reserves) represent key measures of banks’ on-balance sheet risks, in addition to off-balance sheet liquidity risk stemming from unused loan commitments. Furthermore, unrealized securities losses and loan loss reserves seem to better capture the risks stemming from banks’ asset management and provide supporting evidence for the precautionary nature of liquidity hoarding. Moreover, I find that more than one-fourth of the reduction in bank lending during the crisis is due to the precautionary motive.

scholarly journals The Concept of Assessing the Level of the Enterprise Economic Security

2021 ◽  
Vol 11 (2) ◽  
pp. 1259-1268
Author(s):  
Irina Yurievna Vaslavskaya
Keyword(s):  
Financial Stability ◽  
Negative Impact ◽  
Cost Benefit Analysis ◽  
Balance Sheet ◽  
Cost Benefit ◽  
Economic Security ◽  
Assessment System ◽  
Risk Indicators ◽  
Decision Makin ◽  
Balance Sheet Liquidity

Several problems can be identified in assessing the economic security of organizations. Most of the developed techniques in this area involve the assessment of the financial component of economic security using methods for assessing the probability of the bankruptcy of the enterprise. At the same time, there are no unambiguously recommended evaluation methods; often enterprises are limited to any one complex methodology. Any evaluation of the financial component of the security is reduced to the cost-benefit analysis and evaluation of balance sheet liquidity and the financial stability of the organization, without the formation of an integral indicator. This approach does not consider the nature of internal processes and assesses the final impact of these “processes” on the indicators of financial statements (based on which the assessment of the financial component of economic security is formed). Also, one of the problems of assessing economic security using mathematical models is the complexity of mastering these models and the lack of the programs for performing calculations. It should be noted that it is a characteristic of the largest number of studied methods that usually assess the current state of the enterprise, the complex methodology does not consider threats, the maximum that can be considered is a possible prevented damage. Nevertheless, working with threats in the assessment system allows us to predict the possible negative impact on the state of economic security. And timely prevent these situations or “take the risk”, since it is advisable to assess threats through risk indicators. Assessment of economic security is as important as any other economic analytical information needed for the timely decision-makin and the formation of proactive measures.

scholarly journals Bank Liquidity Hoarding Strategies in Uncertain Times: New Evidence from an Emerging Market with Bank-level Data

2021 ◽  
Vol 12 (2) ◽  
pp. 377-398
Author(s):  
Van Dan Dang ◽  
Hoang Chung Nguyen
Keyword(s):  
Banking Sector ◽  
Emerging Market ◽  
Balance Sheet ◽  
Cross Sectional ◽  
Level Data ◽  
Balance Sheet Liquidity ◽  
The Impact ◽  
New Evidence ◽  
Multiple Robustness ◽  
Estimate Uncertainty

The paper explores the impact of uncertainty on bank liquidity hoarding, particularly providing new insights on the nature of the impact by bank-level heterogeneity. We consider the cross-sectional dispersion of shocks to key bank variables to estimate uncertainty in the banking sector and include all banking items to construct a comprehensive measure of bank liquidity hoarding. Using a sample of Vietnamese banks during 2007–2019, we document that banks tend to increase total liquidity hoarding in response to higher uncertainty; this pattern is still valid for on- and off-balance sheet liquidity hoarding. Further analysis with bank-level heterogeneity indicates that the impact of banking uncertainty on liquidity hoarding is significantly stronger for weaker banks, i. e., banks that are smaller, more poorly capitalized, and riskier. In testing the “search for yield” hypothesis to explain the linkage between uncertainty and bank liquidity hoarding, we do not find it to be the case. Our findings remain extremely robust after multiple robustness tests.

scholarly journals International Real Estate Review

2021 ◽  
Vol 24 (1) ◽  
pp. 19-58
Author(s):  
Zongyuan Li ◽  
◽  
Rose Lai ◽  
Keyword(s):  
House Prices ◽  
Balance Sheet ◽  
Housing Markets ◽  
Metropolitan Statistical Area ◽  
Liquidity Shocks ◽  
Balance Sheet Liquidity ◽  
Using Data ◽  
Fundamental Values ◽  
Statistical Area ◽  
The U.S

This paper is about investigating how different bank liquidity creation activities affect housing markets. Using data of 401 metropolitan statistical areas/metropolitan statistical area divisions (MSAs/MSADs) of the U.S. between 1990 and 2018, we show that not all bank liquidity creation activities boost the housing markets. In particular, unlike assetside and off- balance sheet liquidity creations, funding-side liquidity creation dampens housing markets. The relationships between liquidity creation activities and housing markets are stronger in regions with inelastic house supply, but flip when banks face external liquidity shocks. We also find that housing markets dominated by large banks are more sensitive to off-balance sheet liquidity creation activities. Finally, as expected, asset-side and off-balance sheet liquidity creations boost housing markets by driving house prices away from fundamental values. Our results offer a more thorough explanation of how bank liquidity creation fuels the momentum of housing markets.

scholarly journals Analysis of bank failure: An application of CVAR methodology on liquidity

2017 ◽  
Vol 7 (2) ◽  
pp. 18-27
Author(s):  
Mubanga Mpundu
Keyword(s):  
Balance Sheet ◽  
Class Ii ◽  
Bank Failure ◽  
Class I ◽  
Basel Iii ◽  
Continuous Increase ◽  
Coverage Ratio ◽  
Creative Commons ◽  
Liquidity Measures ◽  
Balance Sheet Liquidity

JOURNAL MENU ANALYSIS OF BANK FAILURE: AN APPLICATION OF CVAR METHODOLOGY ON LIQUIDITY DOWNLOAD THIS ARTICLE Mubanga Mpundu ORCID logo DOI:10.22495/rgcv7i2art2 Creative Commons License This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License. Abstract In this paper, balance sheet liquidity data was analyzed comprising of 157 Class I and 234 Class II banks. Class I banks are categorized as those with tier 1 capital in excess of $4 billion and internationally active while Class II banks are the rest. A Cointegrated Vector Autoregressive (CVAR) approach was used on balance sheet liquidity data to ascertain the behavior of variables in relation to bank failure. The study also demonstrated the nature of each of the variables containing estimated Basel III and Traditional liquidity measures for Class I and II banks. The estimated Basel III liquidity standards were made up of the Liquidity Coverage Ratio (LCR) and the Net Stable Funding Ratio (NSFR) while the liquidity measures involved Government Securities Ratio (GSR) and Brokered Deposit Ratio (BDR). Results showed that a response of Net Stable Funding Ratio to a shock in Liquidity Coverage Ratio decreased in the first quarter and a steady continuous increase in the next quarters was observed. A shock on the Liquidity Coverage Ratio therefore would cause banks to increase their level of Net Stable Funding Ratio. This explains why the Liquidity Coverage Ratio is considered for a short term stress period of 30 calender days while the Net Stable Funding Ratio will be considered for a longer stress period of 1 year when fully implemented by banks.

scholarly journals Modeling the Connection between Bank Systemic Risk and Balance-Sheet Liquidity Proxies through Random Forest Regressions

2020 ◽  
Vol 10 (3) ◽  
pp. 52
Author(s):  
Cristina Zeldea
Keyword(s):  
Random Forest ◽  
Systemic Risk ◽  
Balance Sheet ◽  
Theoretical Models ◽  
Random Forest Regression ◽  
Liquidity Provision ◽  
Feature Importance ◽  
Marginal Expected Shortfall ◽  
Balance Sheet Liquidity ◽  
Relevant Factors

Balance-sheet indicators may reflect, to a great extent, bank fragility. This inherent relationship is the object of theoretical models testing for balance-sheet vulnerabilities. In this sense, we aim to analyze whether systemic risk for a sample of US banks can be explained by a series of balance-sheet variables, considered as proxies for bank liquidity for the 2004:1–2019:1 period. We first compute Marginal Expected Shortfall values for the entities in our sample and then imbed them into a Random Forest regression setup. Although we discover that feature importance is rather bank-specific, we notice that cash and available-for-sale securities are the most relevant factors in explaining the dynamics of systemic risk. Our findings emphasize the need for heightened prudential regulation of bank liquidity, particularly in what concerns cash and immediate liquidity instrument weights. Moreover, systemic risk could be consistently tamed by consolidating bank emergency liquidity provision schemes.

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