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Is bank liquidity creation procyclical? Evidence from the US

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  • Niu, Jijun

Abstract

This paper examines how bank liquidity creation reacts to business cycle fluctuations. Using panel data on US banks, we find that bank liquidity creation is procyclical (i.e., banks create more liquidity during economic expansions and less liquidity during recessions). We also find that both on- and off-balance sheet liquidity creation are procyclical. Our results hold across bank size groups, and suggest that bank liquidity creation can amplify business cycle fluctuations.

Suggested Citation

  • Niu, Jijun, 2022. "Is bank liquidity creation procyclical? Evidence from the US," Finance Research Letters, Elsevier, vol. 47(PA).
    • Handle: RePEc:eee:finlet:v:47:y:2022:i:pa:s1544612321005420
    DOI: 10.1016/j.frl.2021.102603
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    References listed on IDEAS

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    1. Tang, Ying & Li, Zhiyong & Chen, Jing & Deng, Chao, 2021. "Liquidity creation cyclicality, capital regulation and interbank credit: Evidence from Chinese commercial banks," Pacific-Basin Finance Journal, Elsevier, vol. 67(C).
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    Cited by:

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    More about this item

    Keywords

    bank; liquidity creation; business cycle;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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