4. Chung-Hua Shen (1)

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Bank Liquidity Risk and Performance

Chung-Hua Shen

Department of Finance

National Taiwan University

TEL !""#$ %-'(") F*+

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chshen('.ntu/e0u/tw

1i-2ai Chen3


National University of 2aohsiungTEL !""#$ )-,',('

F*+ !""#$ )-,',&%,E-mail chen.nu4/e0u/tw

Lan-Feng 2ao


National University of 2aohsiung

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lanfeng.nu4/e0

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Chuan-

1i 1eh

Departme

nt of

Finance

National University

of 2aohsiung

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Bank Liquidity Risk and Performance

Abstract

This stu0y is to employ alternative li8ui0ity ris4 measures 9esi0es li8ui0ity ratio: an0

investigate the causes of li8ui0ity ris4 !causes of li8ui0ity ris4 mo0el$: using an un9alance0 panel

0ataset of '% a0vance0 economies commercial 9an4s over the perio0 ',,6-%((#/ Thus: we apply

panel 0ata instrumental varia9les regression: using two-stage least s8uares !%SLS$ estimators to

estimate 9an4 li8ui0ity ris4 an0 performance mo0el/ ;e fin0 that li8ui0ity ris4 is the en0ogenous0eterminant of 9an4 performance/ The causes of li8ui0ity ris4 inclu0e components of li8ui0 assets

an0 0epen0ence on es net interest margins/

=esi0es: we classify countries as 9an4-9ase0 or mar4et-9ase0 financial system/ The result shows that

li8ui0ity ris4 is negatively relate0 to 9an4 performance in mar4et-9ase0 financial system/ However:

it has no effect on 9an4 performance in 9an4-9ase0 financial system/

Key Words: li8ui0ity ris4: fi

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1. Introduction

Since *ugust %((): the U/S su9prime mortgage crisis has not only threatene0 to the U/S/

economy into a recession: 9ut affecte0 the glo9al financial system/ Furthermore: it 9rings a huge

challenge to short-term an0 long-term 0evelopment for glo9al 9an4ing in0ustry/ =ecause the crisis

has cause0 9an4s an0 other financial institutions 9ecame nervous a9out len0ing to other 9an4s:

9an4s generally lac4 of li8ui0ity following the su9prime mortgage crisis/% Especially: 9an4s

0epen0 heavily on the short-term money mar4et or purchase0 fun0s mar4et will 9e more li4ely to

suffer li8ui0ity pro9lem in the future: an0 the Northern ?oc4 is an e

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an0 mar4et ris4/ =esi0es: =asel AA *ccor0 !=asel Committee on =an4ing Supervision: %((6$ even

ta4es operational ris4 into account/ However: they sel0om mention the li8ui0ity ris4/ Lan0s4roner

an0 Baroush !%(("$ also in0icate0 that there has 9een e

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ris4 measures 9esi0es li8ui0ity ratio/ An our stu0y: we use financing gap measures provi0e0 9y

Saun0ers an0 Cornett !%((#$ to assess 9an4 li8ui0ity ris4/ An normal con0ition: 9an4s sel0om face

the li8ui0ity crisis: an0 li8ui0ity ris4 may vary with overall economic environment/ =esi0es:

previous stu0ies sel0om focuse0 on the causes of li8ui0ity ris4/ Thus: another purpose of this stu0y

is to investigate the causes of li8ui0ity ris4 !causes of li8ui0ity ris4 mo0el$: using an un9alance0

panel 0ataset of '% a0vance0 economies commercial 9an4s over the perio0 ',,6-%((#/ ;e estimate

the causes of li8ui0ity ris4 mo0el through the fis financing gap ratio !FG*B?$ as the 0epen0ent varia9le: an0 0ivi0e the causes of li8ui0ity

ris4 into internal an0 e

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The financing 9ehavior is very 0ifferent 9etween 9an4-9ase0 an0 mar4et-9ase0 financial

system/ An our stu0y: we classify countries as 9an4-9ase0 or mar4et-9ase0 system: an0 investigate

the 0ifference of causes of li8ui0ity ris4 in 0ifferent financial systems/ The empirical results

in0icate0 that the 9an4-specific varia9le has the same effect on 9an4 li8ui0ity ris4 in two financial

systems/ *9out supervision an0 regulation: it provi0es that greater official power: higher activity

restrictiveness will 0iminish 9an4 li8ui0ity ris4 in mar4et-9ase0 financial system/ However: we fin0

that greater regulatory empowerment of private monitoring of 9an4s will increase 9an4 li8ui0ity

ris4 in mar4et-9ase0 financial system/ ?egar0ing macroeconomic environment: the results in0icates

that economic 9oom ma4e 9an4s in mar4et-9ase0 financial system run 0own their li8ui0ity 9uffer:

9ut macroeconomic has no effect on 9an4 li8ui0ity ris4 in 9an4-9ase0 financial system/ =esi0es: we

further investigate 9an4 li8ui0ity ris4 an0 performance in 0ifferent financial systems/ ;e fin0 that

li8ui0ity ris4 has 0ifferent effects on 9an4 performance in 0ifferent financial systems/ Li8ui0ity ris4

is negatively relate0 to 9an4 performance in mar4et-9ase0 financial system however: it has no

effect on 9an4 performance in 9an4-9ase0 financial system/ Finally: we chec4 the ro9ustness of our

results using alternative li8ui0ity ris4 measures: net loans to customer an0 short term fun0ing/ ;e

fin0 that the results are almost same as the mo0el using financing gap to total assets ratio !FG*B?$/

The contri9ution of this stu0y is to use another li8ui0ity ris4 measures 9esi0es to li8ui0ity

ratio: an0 we are the first stu0y to investigate the causes of li8ui0ity ris4/ =esi0es: we fin0 that

li8ui0ity ris4 is an en0ogenous 0eterminant of 9an4 performance/ An su9sample analysis: we further

classify countries as 9an4-9ase0 or mar4et-9ase0 system: an0 investigate the 0ifference of causes of

li8ui0ity ris4 in 0ifferent financial systems/ =esi0es: we further investigate the effect of li8ui0ity

ris4 on 9an4 performance in 0ifferent financial systems/

The remain0er of this stu0y is organi@e0 as follows/ Section % provi0es literature review/

Section & 0escri9es the sample selection an0 varia9le/ Section 6 is econometric specification/

Section presents the empirical results an0 Section # conclu0es the stu0y/

2. Literature Revie of Liquidity Risk !easures

An the past: 9etter practices for li8ui0ity ris4 measures focuse0 on the use of li8ui0ity ratios/

The ratios previous stu0ies use0 inclu0e li8ui0 assets to total assets ratio !e/g/ =our4e: ',",

olyneu< an0 Thornton: ',,% =arth et al/: %((& Demirg-2unt et al/: %((&$: li8ui0 assets to

0eposits ratio !Shen et al/: %(('$ an0 li8ui0 assets to customer an0 short term fun0ing !2osmi0ou

et al/: %(($/ The higher value of li8ui0ity ratio ma4es 9an4 more li8ui0 an0 less vulnera9le to

failure/ =esi0es: some stu0ies use loans to total assets ratio !e/g/ Demirg-2unt an0 Hui@inga:

',,, *thanasoglou et al/: %((#$: net loans to customer an0 short term fun0ing ratio !e/g/ Basiouras

an0 2osmi0ou: %(() 2osmi0ou: %((" Naceur an0 2an0il: %((,$ to assess 9an4>s li8ui0ity ris4/

The higher the value of these ratios: the more li8ui0ity ris4 the 9an4s will suffer/

The li8ui0ity ratios an0 the empirical results of the relationship 9etween 9an4 li8ui0ity ris4#

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an0 performance are shown in Ta9le '/ ;e can fin0 that the effect of li8ui0ity ris4 on 9an4

profita9ility is mi

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inflation/ The 0ata unit of each 9an4 in a given year is million U/S 0ollars/ Supervisory an0

regulatory varia9les are availa9le from =arth et al/ !%((6$/'% acroeconomic varia9les are

availa9le from Anternational onetary Fun0>s !AF$ ;orl0 Economic utloo4 !;E$ Data9ase/

".2. &ariab%e 'escri$tion

3.2.1 Causes of Liquidity Risk

An this mo0el: we consi0er li8ui0ity ris4 measures: 9an4-specific varia9les: supervisory an0

regulatory varia9les: an0 macroeconomic con0itions/ Ta9le & provi0es a 0escription of all varia9les

use0 in this stu0y/ Following Saun0ers an0 Cornett !%((#$: we measure li8ui0ity ris4 9y computing

9an4>s financing gap/'& An fact: es loans an0 customer 0eposits in our stu0y/'6 =esi0es: we 0ivi0e0 financing gap 9y total assets to stan0ar0i@e: finally get the ratio of financing

gap to total assets !FG*B?$/ =an4s with higher financing gap ratio must use its cash: selling li8ui0

assets an0 much e

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An our stu0y: we use interactive terms to e

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3.2.2.1 Bank-specific "erforance !eterinants

An our stu0y: we use the ratio of financing gap to total assets !FG*B?$ to pros si@e on profita9ility may 9e positive up to a

certain limit/ =eyon0 this point the effect of si@e coul0 9e negative 0ue to 9ureaucratic/ Thus: the

relationship may 9e es total assets !SAIE$ to pro

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cre0it ris4 may reflect changes in the health of the 9an4>s loan portfolio !Cooper et al/: %((&$: which

may affect 9an4 performance/ =esi0es: iller an0 Noulas !',,)$ in0icate0 that the more financial

institutions are e

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will 9e profit opportunities for 9an4s/ However: 9an4s may systematically fail to manage well a

0iverse set of financial activities 9eyon0 tra0itional 9an4ing: an0 hence profita9ility woul0 9e

lower/

3.2.2.# Macroeconoic "erforance !eterinants

An or0er to capture the effect of the macroeconomic environment: the two macroeconomic

varia9les use0 are annual percent change of GDB !GDBC$ an0 annual percent change of inflation

!ANF$/ =esi0es: we further a00 GDB annual percent change of last year !GDBC t-'$ an0 inflation

annual percent change of last year !ANF t-'$ to capture the lagge0 effects/ GDB is a measure of total

economic activity within an economy/ Higher economic growth encourages 9an4s to len0 more an0

permits them to charge higher margins: an0 improving the 8uality of their assets/ Brevious stu0ies

foun0 that economic growth has positive effect on 9an4>s performance !e/g/ 2osmi0ou et al/: %((

Basiouras an0 2osmi0ou: %(() *thanasoglou et al/: %((" 2osmi0ou: %(("$/ Thus: GDBC an0

GDBCt-'are e

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This mo0el provi0es an economic analysis of the causes of li8ui0ity ris4/ =esi0es: we

0ivi0e the causes of li8ui0ity ris4 into internal an0 e

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estimate this mo0el/'" An the previous stu0ies: 0eterminants of 9an4 profita9ility were usually

0ivi0e0 into internal an0 e

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structure varia9le is three-9an4 concentration ratio !CN$/ Supervisory an0 regulatory varia9les

inclu0e the interactions 9etween change of GDB an0 official supervisory power in0e< !GDBCJSB$:

interactions 9etween change of GDB an0 private monitoring in0e< !GDBCJBA$: interactions

9etween change of GDB an0 overall 9an4 activities an0 ownership restrictiveness !GDBCJ=*?$/

acroeconomic varia9les inclu0e change of GDB !GDBC$: GDB change of last year !GDBCt-'$:

change of inflation !ANF$ an0 inflation change of last year !ANFt-'$/

;e have more instrumental varia9les than en0ogenous varia9les/ Therefore: the en0ogenous

varia9les are over-i0entifie0/ E8uation !$ an0 !#$ are estimate0 through two stage least s8uares

!%SLS$ estimator ta4ing each 9an4>s ?**: ?*E an0 NA as the 0epen0ent varia9le/

(.". #ubsam$%e Ana%ysis

There are large 0ifferences in financial systems across countries/ Demirg-2unt an0 Levine!',,,$ constructe0 conglomerate in0e< of financial structure: pro0ucing two categories of countries

9an4-9ase0 an0 mar4et-9ase0/', At e

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+. )m$irica% Resu%ts

+.1. Re,ression Resu%ts

Ta9le reports the empirical results of the causes of li8ui0ity ris4 mo0el using FG*B? to

measure li8ui0ity ris4/ *9out 9an4-specific varia9le: the relationship 9etween si@e !SAIE$ an0

li8ui0ity ris4 is significantly positive: while the s8uare of si@e !SAIE%$ an0 li8ui0ity ris4 is

significantly negative/ This provi0es that large 9an4s 9elieve too 9ig to fail argument/ Thus they

have incentive to increase ris4-ta4ing an0 hol0 more loans an0 conse8uently have larger financing

gap ratio/ However: over limit point the effect of si@e 9ecomes negative/ Thus: the effect of si@e on

li8ui0ity ris4 is non-linear/ ;e fin0 that 9oth the less ris4y li8ui0 assets to total assets ratio !L?L*$

an0 ris4y li8ui0 assets to total assets ratio !?L*$ are significantly negative relate0 to li8ui0ity ris4/

The results in0icate0 that 9an4s can re0uce their li8ui0ity ris4 9y hol0ing much li8ui0 assets/

However: es li8ui0ity ris4/ This

provi0es that 9an4s heavily 0epen0 on the es li8ui0ity ris4/ The results in0icate that greater official

power: higher restrictiveness will 0iminish the positive effect of GDBC/ At provi0es that powerful

government will as4 their 9an4s to increase li8ui0ity hoar0/ Strict restrictiveness on 9an4 activities

will ma4e them 0ecrease ris4-ta4ing an0 increase li8ui0ity hoar0/ However: the interactions

9etween annual percent change of GDB an0 private monitoring in0e< !GDBCJBA$ have no effect

on 9an4>s li8ui0ity ris4 significantly/ Thus: we can fin0 that 0irect government supervision an0

regulation of 9an4 activities coul0 re0uce 9an4 li8ui0ity ris4/

?egar0ing macroeconomic environment: we fin0 that 9oth annual percent change of GDB

!GDBC$ an0 GDB annual percent change of last year !GDBCt-'$ have positive effect on 9an4>s

li8ui0ity ris4/ This provi0es that higher economic growth of current year an0 last year ma4e 9an4s

run 0own their li8ui0ity 9uffer an0 in0uce them to len0 more/ However: higher economic growth of

current year an0 last year ma4e 9an4s attract less customer 0eposits: thus increasing their financing

gap/ =esi0es: annual percent change of inflation !ANF$ an0 inflation annual percent change of last

year !ANFt-'$ have significantly positive correlation with 9an4>s li8ui0ity ris4/

Ta9le # reports the empirical results of 9an4 li8ui0ity ris4 an0 performance mo0el using

FG*B? to measure li8ui0ity ris4/ An panel * of Ta9le #: we use ?** to evaluate 9an4

performance/ ;e fin0 that li8ui0ity ris4 !FG*B?$ is negatively an0 significantly relate0 to 9an4

performance/ At in0icate0 that 9an4s with larger gap lac4 sta9le an0 cheap fun0s: an0 thus they haveto use li8ui0 assets or much es cre0itworthiness/ They may impose higher

')

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ris4 premiums on 9orrowe0 fun0s: an0 thus increase 9an4>s cost of fun0ing/ At conse8uently

0ecreases 9an4 performance/

*9out 9an4-specific varia9les: we can fin0 that the relationship 9etween si@e !SAIE$ an0 9an4

performance is significantly positive: while the s8uare of si@e !SAIE%$ an0 9an4 performance is

significantly negative/ This provi0es evi0ence for the economies of scale theory/ At is consistent with

previous stu0y !e/g/ =erger an0 Humphrey: ',,) *ltun9aet al/: %((' *thanasoglou et al/: %((#

2osmi0ou: %(("$/ However: over the optimum point the effect of si@e 9ecomes negative 0ue to

9ureaucratic/ Thus: the effect of si@e on 9an4 performance is non-linear/ ;e also fin0 that capital

!ET*$ has the positive effect on 9an4 performance/ =an4s with soun0 capital position have more

time an0 fle

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positive relationship in0icate0 that inflation is anticipate0 9y the inflation change of last year: thus

give 9an4s the opportunity to a05ust interest rates accor0ingly: an0 conse8uently increase their

performance/ However: this positive effect is wea4/

An panel = of Ta9le #: we use ?*E to evaluate 9an4 performance/ ;e fin0 that almost all of

the results are same as ?** mo0el: et fin0 the evi0ence for the economies of scale theory/ =esi0es: cre0it ris4 !LLBL$ has the

positive effect on NA/ At provi0es that cre0it ris4 re8uires 9an4s to apply a ris4 premium

implicitly in the interest rates charge/ This is consistent with previous stu0y !au0os an0

FernKn0e@ 0e Guevara: %((6 Aannotta et al/: %(() Santiago Car9R Qalver0e an0 Francisco

?o0rgue@ FernKn0e@: %(() au0os an0 Sols: %((,$/

*9out mar4et structure: concentration !CN$ shows a significantly negative correlation with

9an4 performance: thus we can>t fin0 the evi0ence to support the structure-con0uct-performance

!SCB$ hypothesis/ ;e infer that 9an4s operate in high concentration environment will 0ecrease their

NA 9ecause of high competition/ =esi0es: interest rate 0ecreases in recent years/ ay9e it lea0s

the interest rate sprea0 to 0ecreases an0 thus 0ecreases their NA/

?egar0ing macroeconomic environment: we fin0 that 9oth annual percent change of inflation

!ANF$ an0 inflation annual percent change of last year !ANF t-'$ have positive effect on NA/ The

positive relationship in0icate0 that inflation is anticipate0: thus give 9an4s the opportunity to a05ust

interest rates accor0ingly: an0 conse8uently increase their NA/ This fin0ing is consistent with

previous stu0y !Huy9ens an0 Smith: ',,,$/

+.2. Re,ression Resu%ts in 'ifferent -inancia% #ystems

The financing 9ehavior is very 0ifferent 9etween 9an4-9ase0 an0 mar4et-9ase0 financial

system/ An su9sample analysis: we classify countries as 9an4-9ase0 or mar4et-9ase0 system: an0

investigate the causes of li8ui0ity ris4 in 0ifferent financial systems/ Ta9le ) reports the results of

causes of li8ui0ity ris4 in 0ifferent financial systems/ Banel * of Ta9le ) shows the results of

mar4et-9ase0 financial system: an0 Banel = shows the results of 9an4-9ase0 financial system/

Compare0 the results of two financial systems: the 9an4-specific varia9le has the same effect on

9an4 li8ui0ity ris4 in two financial systems/

*9out supervision an0 regulation: it provi0es that greater official power: higher activity',

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ris4 in 9an4-9ase0 financial system/ ?egar0ing macroeconomic environment: the results in0icates

that economic 9oom of current year an0 last year ma4e 9an4s in mar4et-9ase0 financial system run

0own their li8ui0ity 9uffer/ However: we fin0 that the macroeconomic con0ition has no effect on

9an4 li8ui0ity ris4 in 9an4-9ase0 financial system/ =ecause 9an4s play 4ey role in financing: they

0on>t nee0 to raise their fun0s on financial mar4et: which was 0eeply affecte09y macroeconomic

con0ition/ Thus: macroeconomic con0ition has no effect on 9an4 li8ui0ity ris4 in 9an4-9ase0

financial system/

;e also investigate the effect of financial system on 9an4 performance/ Ta9le " reports the

results of the relationship 9etween financial system an0 9an4 performance using FG*B? to

measure li8ui0ity ris4/ Banel * shows the results using ?** to evaluate 9an4 performance/ Banel

= shows the results using ?*E to evaluate 9an4 performance/ Banel C shows the results using

NA to evaluate 9an4 performance/

The empirical results show that mar4et-9ase0 system has the positive effect on 9an4

performance even we use 0ifferent performance measures !?**: ?*E an0 NA$/ This

in0icate0 that stoc4 mar4et 0evelopment may improve 9an4 performance: for e

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ris4 is negatively relate0 to 9an4 performance in mar4et-9ase0 financial system: an0 has no

effect on 9an4 performance in 9an4-9ase0 financial system/

Ta9le '' shows the results of 9an4 li8ui0ity ris4 an0 performance in 0ifferent financial

systems using NA as 0epen0ent varia9le/ Banel * of Ta9le '' shows the results of mar4et-9ase0

financial system: an0 Banel = shows the results of 9an4-9ase0 financial system/ From Ta9le '': wefin0 that li8ui0ity ris4 is positively relate0 to NA in two financial systems/ At in0icate0 that 9an4s

with high levels of illi8ui0 assets in loans may receive higher interest income in two financial

systems/

+.". Robust est

;e chec4 the ro9ustness of our results using alternative li8ui0ity ris4 measures/ An this section:

we use net loans to customer an0 short term fun0ing ratio !NLCS$ to ree

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systems/ *9out supervision an0 regulation: it provi0es that greater official power: higher activity



ris4 in mar4et-9ase0 financial system/ ?egar0ing macroeconomic environment: the results in0icates

that economic 9oom ma4e 9an4s in mar4et-9ase0 financial system run 0own their li8ui0ity 9uffer:

9ut macroeconomic has no effect on 9an4 li8ui0ity ris4 in 9an4-9ase0 financial system/ =esi0es: we

further investigate 9an4 li8ui0ity ris4 an0 performance in 0ifferent financial systems/ ;e fin0 that

li8ui0ity ris4 has 0ifferent effects on 9an4 performance in 0ifferent financial systems/ Li8ui0ity ris4

is negatively relate0 to 9an4 performance in mar4et-9ase0 financial system however: it has no

effect on 9an4 performance in 9an4-9ase0 financial system/ Finally: we chec4 the ro9ustness of our

results using alternative li8ui0ity ris4 measures: net loans to customer an0 short term fun0ing/ ;e

fin0 that the results are almost same as the mo0el using financing gap to total assets ratio !FG*B?$/

The contri9ution of this stu0y is to use another li8ui0ity ris4 measures 9esi0es to li8ui0ity

ratio: an0 we are the first stu0y to investigate the causes of li8ui0ity ris4/ =esi0es: we fin0 that

li8ui0ity ris4 is an en0ogenous 0eterminant of 9an4 performance/ An su9sample analysis: we further

classify countries as 9an4-9ase0 or mar4et-9ase0 system: an0 investigate the 0ifference of causes of

li8ui0ity ris4 in 0ifferent financial systems/ =esi0es: we further investigate the effect of li8ui0ity

ris4 on 9an4 performance in 0ifferent financial systems/

Reference

*ltun9a: 1/: Gar0ener: E/ B/ /: olyneu

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* Departure is the Su9-prime CrisisW: Baper presente0 at the ?eserve =an4 of *ustralia

conference/

Dec4er: B/ */ !%((($: The Changing Character of Li8ui0ity an0 Li8ui0ity ?is4 anagement *

?egulatorXs Berspective: Fe0eral ?eserve =an4 of Chicago =an4ing Supervision an0

?egulation ?esearch/

Demirg-2unt: */: an0 Hui@inga: H/ !',,,$: Determinants of Commercial =an4 Anterest argins

an0 Brofita9ility Some Anternational Evi0ence: /!l* B#$k Ec!$!mic R"%i"&: Qol/'&:

&),-6("/

Demirg-2unt: */: an0 Hui@inga: H/ !%((($: Financial Structure an0 =an4 Brofita9ility:

;orl0 =an4 Bolicy ?esearch ;or4ing Baper N/ %6&(/

Demirg-2unt: */: Laeven: L/: an0 Levine: ?/ !%((&$: The Ampact of =an4 ?egulations:

Concentration: an0 Anstitutions on =an4 argins: ;orl0 =an4 Bolicy ?esearch

;or4ing Baper N/ &(&(/

Demirg-2unt: */: an0 Levine: ?/ !',,,$: =an4-=ase0 an0 ar4et-=ase0 Financial Systems

Cross-Country Comparisons: ;orl0 =an4 Bolicy ?esearch ;or4ing Baper N/ %'6&/

Demirg-2unt: */: an0 a4simovic: Q/ !%((%$: Fun0ing Growth in =an4-=ase0 an0 ar4et-

=ase0 Financial Systems Evi0ence from Firm-Level Data:'!u$#l !( Fi$#$ci#l

%

&

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Ec!$!mics: Qol/ #: &&)-&/

Diamon0: D/ ;/: an0 Dy9vig: B/ H/ !',"&$: =an4 ?uns: Deposit Ansurance: an0 Li8ui0ity:

'!u$#l!( P!litic#l Ec!$!m,: Qol/ ,': 6('-6',/

D5an4ov: S/: La Borta: ?/: Lope@-0e-Silanes: F/: an0 Shleifer: */ !%((%$: The ?egulation of Entry:

T." 0u#t"l, '!u$#l !( Ec!$!mics: Qol/ ''): '-&)/

Doliente: 7/ S/ !%(($: Determinants of =an4 Net Anterest argins in Southeast *sia:

Appli"*Fi$#$ci#l Ec!$!mics L"tt"s: Qol/ ': &-)/

Dra4os: 2/ !%((&$: *ssessing the Success of ?eform in Transition =an4ing '( 1ears Later

*n Anterest argins *nalysis:'!u$#l !( P!lic, M!*"li$): Qol/ %: &(,-&')/

Dunning: T/ !%(("$: o0el Specification in Anstrumental-Qaria9les ?egression:P!litic#l A$#l,sis:

Qol/ '#: %,(-&(%/

Eichengreen: =/: an0 Gi9son: H/ D/ !%(('$: Gree4 =an4ing at the Dawn of the New

illennium: Baper presente0 at the Centre for Economic Bolicy ?esearch/

Francisco Gon@Kle@ !%(($: =an4 ?egulation an0 ?is4-ta4ing Ancentives *n Anternational

Comparison of =an4 ?is4:'!u$#l !( B#$ki$) #$* Fi$#$c": Qol/ %,: ''&-''"6/

Frei

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ar4et-=ase0 Economies: Bu9lishe0 in Demirg-2unt: */: an0 Levine: ?/:

Fi$#$ci#l Stuctu" #$* Ec!$!mic G!&t.1 A C!ss-C!u$t, C!mp#is!$ !( B#$ks+

M#k"ts+ #$* D"%"l!pm"$t: AT Bress: Cam9ri0ge: &6)-&)/

Shen: C/-H/: 2uo: C/-7/: an0 Chen: H/-7/ !%(('$: Determinants of Net Anterest argins in Taiwan

=an4ing An0ustry:'!u$#l !( Fi$#$ci#l Stu*i"s: Qol/ ,: 6)-"&/

Short: =/ 2/ !',),$: The ?elation 9etween Commercial =an4 Brofit ?ates an0 =an4ing

Concentration in Cana0a: ;estern Europe an0 7apan:'!u$#l !( B#$ki$) #$* Fi$#$c": Qol/

&: %(,-%',/

Swary: A/ !',"#$: Stoc4 ar4et ?eaction to ?egulatory *ction in the Continental Allinois Crisis:

'!u$#l !( Busi$"ss: Qol/ ,: 6'-6)&/

%#

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ab%e 1 )m$irica% Resu%ts of t0e Re%ations0i$ beteen Bank Liquidity Risk and Performance

Brevious Stu0ies Li8ui0ity ?is4 easures Empirical ?esults

=our4e !',",$ The ratio of li8ui0 assets to total assets The li8ui0ity ratio is positively relate0 to return on assets !?*$/

olyneu< an0 Thornton !',,%$ The ratio of li8ui0 assets to total assets The li8ui0ity ratio is negatively relate0 to return on assets !?*$/

Demirg-2unt an0 Hui@inga !',,,$ The ratio of loans to total assets The ratio of loans to total assets is negatively relate0 to return on assets !?*$

an0 positively relate0 to net interest margins !NA$/

Shen: 2uo an0 Chen ! %(('$ The ratio of li8ui0 assets to 0eposits =an4s with high fraction of li8ui0 assets have lower net interest margins !NA$/

=arth: Nolle: Bhumiwasana an0 1ago !%((&$ The ratio of li8ui0 assets to total assets The li8ui0ity ratio is negatively relate0 to return on assets !?*$/Demirg-2unt: Laeven an0 Levine ! %((&$ The ratio of li8ui0 assets to total assets =an4s that hol0 a high fraction of li8ui0 assets have lower net interest margins

!NA$/ *n0 it is consistent with 9an4s receiving lower returns on hol0ing cash

or securities: 9ut facing a competitive mar4et for 0eposits/

2osmi0ou: Tanna an0 Basiouras !%(($ The ratio of li8ui0 assets to customer The ratio of li8ui0 assets to customer an0 short term fun0ing has positive effect

an0 short term fun0ing on return on average assets !?**$/ At has negative effect on net interest

margins !NA$ 9ut is only significant in the presence of e

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ab%e 2 Bank bservations in )ac0 *ountry and ear

1earYCountry *ustralia Cana0a France Germany Ataly 7apan Lu

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ab%e " &ariab%e 'escri$tion

Category Qaria9les Descript ionYCalculat ion

Li8ui0ity ?is4 FG*B? The ratio of financing gap to total assets/ Financing gap 0efine0 as the 0ifference 9etween a 9an4Xs loans an0 customer 0eposit/

NLCS The ratio of net loans to customer an0 short term fun0ing/

Brofita9ility ?** Net profit after ta< 0ivi0e0 9y average total assets/

?*E Net profit after ta< 0ivi0e0 9y average total e8uities/

NA Anterest income minus interest e

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ab%e ( 'escri$tive #tatistics

Qaria9le ean S/D/ in a

Documents

4. Chung-Hua Shen (1)