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Lebanon-Determinants of Commercial Bank Deposits in a Regional Financial Center

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  • Harald Finger
  • Heiko Hesse

Abstract

This paper empirically examines the demand for commercial bank deposits in Lebanon, a regional financial center. With Lebanon''s high fiscal deficits financed largely by domestic commercial banks that rely on deposit funding, deposit growth is a key variable to assess government financing conditions. At the macro level, we find that domestic factors such as economic activity, prices, and the interest differential between the Lebanese pound and the U.S. dollar are significant in explaining deposit demand, as are external factors such as advanced economy economic and financial conditions and variables proxying the availability of funds from the Gulf. Impulse response functions and variance decomposition analyses underscore the relative importance of the external variables. At the micro level, we find that in addition, bank-specific variables, such as the perceived riskiness of individual banks, their liquidity buffers, loan exposure, and interest margins, bear a significant influence on the demand for deposits.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 09/195.

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Length: 21
Date of creation: 01 Sep 2009
Date of revision:
Handle: RePEc:imf:imfwpa:09/195

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Related research

Keywords: Bank soundness; Banking sector; Commercial banks; Depositories; Economic models; Financial systems; Liquidity; Profits; deposit growth; banking; bank deposit; banking system; bank deposit growth; bank deposits; bank assets; net interest margin; income statement; financial market; deposit insurance; stock index; bank interest; financial system; liquidity ratio; international finance; bank profitability; financial stability; financial sector; bank data; financial intermediation; bank interest margins; return on equity; debt restructuring; bank balance sheet; financial institutions; world stock market; banking systems; international country risk guide; stock market; banks ? asset; stock market index; return on assets; financial risk; banks ? balance sheets; deposit rate; financial markets; deposit insurance scheme; bank spreads; equity capital;

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  1. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November.
  2. Boyd, John H. & Runkle, David E., 1993. "Size and performance of banking firms : Testing the predictions of theory," Journal of Monetary Economics, Elsevier, vol. 31(1), pages 47-67, February.
  3. Brock, Philip L. & Rojas Suarez, Liliana, 2000. "Understanding the behavior of bank spreads in Latin America," Journal of Development Economics, Elsevier, vol. 63(1), pages 113-134, October.
  4. Demirguc, Asli & Huizinga, Harry, 1999. "Determinants of Commercial Bank Interest Margins and Profitability: Some International Evidence," World Bank Economic Review, World Bank Group, vol. 13(2), pages 379-408, May.
  5. Beck, Thorsten & Hesse, Heiko, 2009. "Why are interest spreads so high in Uganda?," Journal of Development Economics, Elsevier, vol. 88(2), pages 192-204, March.
  6. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
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