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Liquidity and liquidity cost vs. bank profitability. A model analysis attempt

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  • Boguslaw Guzik

    ()
    (Katedra Ekonometrii, Akademia Ekonomiczna, Polska)

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    Abstract

    The author suggests a “model” of relations between liquidity, costs of liquidity and basic or empirical profitability. The first part of the article present the idea of the model analysis. The author makes an effort to explain the frequent empirical paradox – when an increase of liquidity is accompanied by an increase in profitability. The second part present the model analysis in more detail. The author refers to the economic and econometrical model formation. He suggests using the bank profitability model, since it is a concatenation of two submodels: basic profitability submodel and liquidity costs submodel. These considerations are illustrated with an example of estimating: liquidity costs, basic profitability and liquidity cost ratio for a large Polish bank listed on the Warsaw Stock Exchange.

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    File URL: http://www.ioz.pwr.wroc.pl/boid/artykuly/2-2008/art-3-guzik.pdf
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    Bibliographic Info

    Article provided by Wroclaw University of Technology, Institute of Organization and Management in its journal Operations Research and Decisions.

    Volume (Year): 2 (2008)
    Issue (Month): ()
    Pages: 37-54

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    Handle: RePEc:wut:journl:v:2:y:2008:p:37-54

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    Web page: http://www.ioz.pwr.wroc.pl/
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    Related research

    Keywords: basic bank profitability; liquidity; liquidity costs;

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    1. Shaffer, Sherrill, 2001. "Banking conduct before the European single banking license: a cross-country comparison," The North American Journal of Economics and Finance, Elsevier, vol. 12(1), pages 79-104, March.
    2. Alli Nathan & Edwin H. Neave, 1989. "Competition and Contestability in Canada's Financial System: Empirical Results," Canadian Journal of Economics, Canadian Economics Association, vol. 22(3), pages 576-94, August.
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