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Bank Liquidity Risk and Performance

Author

Listed:
  • Yi-Kai Chen

    (Department of Finance, National University of Kaohsiung, Taiwan)

  • Chung-Hua Shen

    (Department of Finance and Banking, Shih Chien University, Taiwan)

  • Lanfeng Kao

    (Department of Finance, National University of Kaohsiung, Taiwan)

  • Chuan-Yi Yeh

    (Cathay United Bank, Taiwan)

Abstract

This study employs an alternative measure of liquidity risk to investigate its determinants by using an unbalanced panel dataset of commercial banks in 12 advanced economies over the period 1994–2006. Dependence on liquid assets for external funding, supervisory and regulatory factors, and macroeconomic factors are all determinants of liquidity risk. Because of higher funding costs for obtaining liquidity, liquidity risk is regarded as a discount for bank profitability, yet liquidity risk shows a premium on bank performance in terms of banks’ net interest margins. Liquidity risk has reverse impacts on bank performance in a market-based financial system.

Suggested Citation

  • Yi-Kai Chen & Chung-Hua Shen & Lanfeng Kao & Chuan-Yi Yeh, 2018. "Bank Liquidity Risk and Performance," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 21(01), pages 1-40, March.
    • Handle: RePEc:wsi:rpbfmp:v:21:y:2018:i:01:n:s0219091518500078
    DOI: 10.1142/S0219091518500078
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