European Parliament Library

High Liquidity Creation and Bank Failures :, Do They Behave Differently?, Zuzana Fungacova, Rima Turk, Laurent Weill

We formulate the “High Liquidity Creation Hypothesis” (HLCH) that a proliferation in the core activity of bank liquidity creation increases failure probability. We test the HLCH in the context of Russian banking, which provides a natural field experiment due to numerous failures experienced over the past decade. Using Berger and Bouwman’s (2009) liquidity creation measures as a comprehensive proxy for overall bank output, we find that high liquidity creation significantly increases the probability of bank failure; this finding survives multiple robustness checks. Our results suggest that regulatory authorities can mitigate systemic distress and reduce the costs of bank failures to society through early identification of high liquidity creators and enhanced monitoring of their funding and investment activities
Table Of Contents
Cover Page; Title Page; Copyright Page; Contents; Tables; I. Introduction; II. Literature Review; III. Data Description and Methodology; A. Data; B. Liquidity Creation Measures; 1. Liquidity Creation Measures; C. Methodology; IV. Results; 2. Development of the Main Variables; 3. Descriptive statistics of the banks with high liquidity creation and the other; A. Regression Results; 4. Liquidity Creation and Bank Failures: Baseline Model; B. Alternative Estimations; 5. Liquidity Creation and Bank Failures: Longer Lags; 6. Liquidity Creation and Bank Failures: Alternative Measure of Failure
Literary Form
non fiction
Description based upon print version of record
Physical Description
1 online resource (58 p.)
Specific Material Designation
Form Of Item

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