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Determinants of Banks’ Liquidity Buffer Holdings: Evidence from the Turkish Banking Sector

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  • Buket MENTESOGLU ERDEMLI

Abstract

This paper examines the determinants of liquidity buffers in the Turkish banking system using a quarterly panel dataset of 20 deposit banks covering the period 2006Q1–2025Q2. The empirical results indicate that capital adequacy and profitability are the main drivers of liquidity buffers, confirming the role of prudential strength and internal resilience in liquidity management. The saving deposit ratio shows a stabilizing effect, implying that banks with more stable funding rely less on excess liquidity. At the macro level, real GDP growth is negatively associated with liquidity buffers, consistent with countercyclical liquidity behavior, whereas inflation and interest rates remain insignificant. The regulation model indicates that the implementation of the Basel III Liquidity Coverage Ratio had a positive and statistically significant effect on banks’ liquidity holdings, confirming that regulatory tightening effectively encouraged the accumulation of high-quality liquid assets. Moreover, the COVID-19 model captures a temporary increase in liquidity buffers during the pandemic, reflecting precautionary liquidity hoarding under heightened uncertainty. Country-specific indicators such as rising CDS spreads and credit rating downgrades do not exhibit a significant impact. These findings suggest that Turkish banks’ liquidity management is primarily shaped by internal prudential motives and profitability considerations rather than external shocks or regulatory transitions.

Suggested Citation

  • Buket MENTESOGLU ERDEMLI, 2025. "Determinants of Banks’ Liquidity Buffer Holdings: Evidence from the Turkish Banking Sector," Journal of BRSA Banking and Financial Markets, Banking Regulation and Supervision Agency, vol. 19(2), pages 149-172.
    • Handle: RePEc:bdd:journl:v:19:y:2025:i:2:p:149-172
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    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
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G01 - Financial Economics - - General - - - Financial Crises

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