Liquid Assets in Banks: Theory and Practice
AbstractThis paper summarizes theoretical findings on the determinants of liquid assets held by banks. The findings are summarized in a series of predictions, some of which are tested using a panel data set on Mexican banks. Surprisingly, we find that banks with relatively more demand deposits have relatively less liquid assets, in contrast with the theoretical prediction. We further exploit a period characterized by a prolonged aggregate liquidity shock on the Mexican banking system to shed light on the question: are there banks that rely more than others on liquid assets to meet their liquidity needs? We find that only small banks seem to rely on liquid assets to meet severe liquidity shocks.
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Bibliographic InfoPaper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 446.
Length: 40 pages
Date of creation: 14 Dec 1999
Date of revision:
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Postal: Boston College, 140 Commonwealth Avenue, Chestnut Hill MA 02467 USA
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More information through EDIRC
liquid assets; banks; liquidity shocks;
Find related papers by 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2000-01-31 (All new papers)
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