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Bank regulatory capital and liquidity creation: evidence from BRICS countries

Author

Listed:
  • Muhammad Umar
  • Gang Sun
  • Khurram Shahzad
  • Zia-ur-Rehman Rao

Abstract

Purpose - The purpose of this paper is to explore the relationship between bank regulatory capital and liquidity creation in banks of BIRCS countries. Design/methodology/approach - Data from all publicly listed banks of BRICS nations for the period 2003-2014 have been collected and analyzed. Two-stage least-squares regression has been used to control endogeneity. The econometric model includes different control variables that have been selected based on the extant literature. Findings - Increase in bank capital negatively affects bank liquidity creation which implies that “financial fragility-crowding out” hypothesis holds for banks of BRICS countries. Originality/value - This study provides the evidence of the inverse relationship between bank regulatory capital and liquidity creation from emerging economies. The findings show that there is a trade-off between curtailing bank risk taking and liquidity creation. Therefore, the regulators must formulate policies to strike a balance between the two.

Suggested Citation

  • Muhammad Umar & Gang Sun & Khurram Shahzad & Zia-ur-Rehman Rao, 2018. "Bank regulatory capital and liquidity creation: evidence from BRICS countries," International Journal of Emerging Markets, Emerald Group Publishing Limited, vol. 13(1), pages 218-230, January.
    • Handle: RePEc:eme:ijoemp:ijoem-04-2015-0072
    DOI: 10.1108/IJoEM-04-2015-0072
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    Citations

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    Cited by:

    1. Gupta, Juhi & Kashiramka, Smita & Ly, Kim Cuong & Pham, Ha, 2023. "The interrelationship between bank capital and liquidity creation: A non-linear perspective from the Asia-Pacific region," International Review of Economics & Finance, Elsevier, vol. 85(C), pages 793-820.
    2. Ahmad Sahyouni & Man Wang, 2022. "Bank capital and liquidity creation: evidence from Islamic and conventional MENA banks," Afro-Asian Journal of Finance and Accounting, Inderscience Enterprises Ltd, vol. 12(3), pages 291-311.

    More about this item

    Keywords

    Regulatory capital; Bank; Emerging economies; Liquidity creation; BRICS countries; G21; G28;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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