The impact of bank liquidity, monetary policy and global crises on bank risk-taking: evidence from Vietnam

Abstract

Purpose

This paper aims to examine the impact of bank liquidity, monetary policy and global crises on bank risk-taking behavior of Vietnamese banks. It provides evidence for a risk-taking channel of monetary policy through bank liquidity and global crises.

Design/methodology/approach

The study uses the data set of 572 observations from 35 banks operating in Vietnam between 2005 and 2022, using the GMM regression technique.

Findings

The findings indicate that banks with higher liquidity tend to take more risks in the long run. Additionally, expansionary monetary policies encourage banks to take on more risk. Bank liquidity and global crises, such as the global financial crisis and the COVID-19 pandemic, not only directly affect bank risk-taking but also indirectly through monetary policy.

Originality/value

This paper expands the existing literature by examining the effect of bank liquidity, monetary policy and global crises on bank risk-taking by using the GMM and two models of which the authors regress the impact with and without bank liquidity and global crises. New factors affecting risk-taking, including operating cost, financial crisis and the COVID-19 pandemic are added into the model.

Citation

Nguyen, P.D. (2024), "The impact of bank liquidity, monetary policy and global crises on bank risk-taking: evidence from Vietnam", Journal of Financial Regulation and Compliance, Vol. 32 No. 5, pp. 684-698. https://doi.org/10.1108/JFRC-03-2024-0052