Liquidity creation and bank profitability |
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| Affiliation: | 1. Charles University, Prague, Czech Republic;2. IOS Regensburg, Czech Republic;3. ING, Prague, Czech Republic;4. EM Strasbourg Business School, University of Strasbourg, France;1. Moore School of Business, University of South Carolina, 1014 Greene Street, Columbia, SC 29208, United Statesn;2. Wharton Financial Institutions Center, United Statesn;3. European Banking Center, Netherlandsn;4. Villanova University, 800 Lancaster Avenue, 2065 Bartley Hall, Villanova, PA 19085, United States |
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| 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. |
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| Keywords: | Bank Liquidity creation Profitability G21 G28 |
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