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Liquidity creation and bank profitability

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  • Duan, Ying
  • Niu, Jijun

Abstract

This paper examines the effect of liquidity creation on bank profitability. Using a panel of US banks, we find that liquidity creation is associated with higher profitability. This result holds during normal times and the financial crisis, and for banks of different sizes. When we decompose liquidity creation into its individual components, we find that liability-side and off-balance sheet liquidity creation are positively related to profitability, while asset-side liquidity creation is negatively related to profitability.

Suggested Citation

  • Duan, Ying & Niu, Jijun, 2020. "Liquidity creation and bank profitability," The North American Journal of Economics and Finance, Elsevier, vol. 54(C).
    • Handle: RePEc:eee:ecofin:v:54:y:2020:i:c:s1062940820301479
    DOI: 10.1016/j.najef.2020.101250
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    More about this item

    Keywords

    Bank; Liquidity creation; Profitability;
    All these keywords.

    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

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