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Keeping in view the robust growth of Islamic banking around the globe, this study aims to comparatively analyze the association between liquidity creation and liquidity risk for Islamic banks (IBANs) and conventional banks (CBANs) in Pakistan and Malaysia over a period of 2004–2021. The moderating role of bank loan concentration on the aforementioned relationship is also studied.

Regression estimation methods such as fixed effect, random effect and generalized least square are deployed for obtaining results. Liquidity creation Burger Bouwman measure (cat fat and noncat fat) and Basel-III liquidity risk measure (liquidity coverage ratio) are also used.

The results give us insight that liquidity creation is positively and significantly related to liquidity risk in both IBANs and CBANs of Pakistan and Malaysia. This relationship has been moderated negatively (reversed) and significantly by credit concentration showing the importance of risk management and loan portfolio concentration.

It is analyzed that during the process of liquidity creation, IBANs in Pakistan faced more liquidity risk for both on and off-balance sheet transactions in the presence of moderation of loan concentration than IBANs in Malaysia necessitating strategic policy-making for important aspects of liquidity risk management and loan concentration while creating liquidity.

Such studies comparing IBANs and CBANs comparison keeping in view liquidity creation, liquidity risk and loan concentration are either limited or nonexistent.

The study seeks to evaluate the effect of capital adequacy and competition on the liquidity creation of Kenyan commercial banks.

Unbalanced panel data from 36 Kenyan commercial banks with licenses from 2001 to 2020 is used in the study. The generalized method of moments (GMM), a two-step system, is employed in the investigation. To increase the robustness and prevent erroneous findings, serial correlation tests and instrumental validity analyses are used. The methodology developed by Berger and Bouwman (2009) is used to estimate the commercial banks' levels of liquidity creation.

The study supports the financial fragility-crowding out hypothesis by finding a significant negative effect of capital adequacy on the liquidity creation of commercial banks. The research also identifies a significant inverse relationship between competition and liquidity creation, depicting competition's value-destroying effect.

A trade-off exists between capital adequacy and liquidity creation, which must be carefully evaluated as changes in capital requirements are considered. The value-destroying effect of competition on liquidity creation presents a case for policy geared toward consolidating banks' operations through possible mergers and acquisitions.

To the best of the authors' knowledge, this is the first study to empirically offer evidence concurrently on the effect of competition and capital adequacy on the liquidity creation of commercial banks in a developing economy such as Kenya. Additionally, the authors employ a novel measure of competition at the firm level.

This study investigates the relationship between bank capital and liquidity creation and further examines the effect that institutional quality has on this relationship in Sub-Saharan Africa (SSA).

The data comprise 41 universal banks in nine SSA countries from 2010 to 2022. The study employs the two-step system generalized methods of moments and further uses alternative estimators such as the fixed-effect and two-stage least squares methods.

The empirical results show that bank capital has a direct positive and significant effect on liquidity creation. In addition, the positive effect of bank capital on liquidity creation is enhanced, particularly in a strong institutional environment. The results imply that nonconstraining capital regulatory policies bolster bank solvency, improve risk-absorption capacity and increase liquidity creation.

This study has several policy implications. First, it provides empirical evidence on the position of banks in SSA on the financial fragility and risk-absorption hypothesis of bank capital and liquidity creation debates. This study shows that the effect of bank capital on liquidity creation in SSA countries is positive and supports the risk-absorption hypothesis. Second, this study highlights that a country's quality institutions can complement bank capital to increase liquidity creation. In addition, this study highlights that nonconstraining capital regulatory policies will bolster bank solvency, improve risk-absorption capacity and increase liquidity creation.

The novelty of this study is that it introduces the country's quality institutional environment into bank capital and liquidity creation links for the first time in SSA.

This research examines the relationship between market power and liquidity creation in the specific context of bank profitability in the Vietnamese banking sector.

The study applies the methodology proposed by Berger and Bouwman (2009) to demonstrate the creation of bank liquidity through a three-step procedure for investigating the relationship between market power and liquidity creation. The three steps include non-fat liquidity (NFLC), fat liquidity (FLC) and system generalized method of moments estimation for panel data.

This study finds that liquidity creation increases when a bank has high market power. Further, highly profitable banks positively impact the market power of banks with regard to liquidity creation, relative to less profitable banks. Moreover, bank size, capital, economic growth and interest rate negatively influence bank liquidity creation, while credit risk positively relates to bank liquidity creation.

Measurements used in this study are based on the works of Berger and Bouwman (2009). There are specific variations, relative to Basel III. In addition, other variables significantly impact bank liquidity creation that have not been considered in the models, and a quadratic model should have been considered to measure market power and bank liquidity creation.

This study suggests that managers should control the liquidity of their banks by supervising vulnerable characteristics that have been mentioned herein and emphasizing improvements in profitability. Further, the government may consider encouraging banks to generate more liquidity by modifying regulations concerned with market power or reinforcing policies about improving the transparent business environment.

This study characterizes an attempt to examine the influence of market power on the liquidity creation of banks in Vietnam, which represents one of the most dynamic systems in Asia, with several varied participating banks. The current study also examines the same within the specific context of the modifying impact of the profitability of banks.

The purpose of this paper is to explore the determinants of three different types of bank liquidity: funding liquidity, liquidity creation, and stock liquidity in emerging markets.

It uses an extensive set of data from all the listed banks of Brazil, Russia, India, China, and South Africa, collectively known as the BRICS countries, spanning the period 2002-2014. Multiple linear regression has been used to estimate the coefficients of the determinants.

In case of emerging markets, bank size is not a determinant of different types of liquidity, except funding liquidity. Besides, the recent financial crisis had an impact on funding liquidity as well as “cat nonfat” measure of liquidity creation but it did not affect “cat fat” measure and stock liquidity. The variation in funding liquidity is also explained by the profitability and the riskiness of the bank. Effective interest rate, national savings rate, and inflation rate are also the determinants of funding liquidity. Bank-specific determinants of liquidity creation include bank leverage and profitability, and macroeconomic determinants include stock market index, effective interest rate, and unemployment rate. The variation in stock liquidity of the bank is explained by profitability and price of stocks, trading volume, volatility of stock returns, and percentage change in real gross domestic product. Neither market capitalization nor stock market index is the determinant of stock liquidity of the banks.

This study uses the data from publically listed banks only.

The findings of this study may be used by the policy makers and bank managers in the emerging markets to design better policies and to strengthen the banking system to avoid financial turmoil in future.

Most of the existing studies focus on bank liquidity in developed countries and studies aiming on emerging countries are rare. The existing studies focus more on funding liquidity and liquidity creation but to the best of the authors’ knowledge, none of the studies analyze the determinants of banks’ stock liquidity. So, this study bridges the above mentioned gaps by focusing on bank liquidity in emerging markets, and exploring the determinants of the stock liquidity of the banks.

The paper aims to test the effect of liquidity creation on profitability and stability with the moderating role of political instability and its level of implication on the overall banking sector of Pakistan.

This study uses the panel data estimation technique, including fixed- and random-effect model, by taking sample data of 28 banks of Pakistan that are providing their services from 2006 to 2019. Moreover, this study uses the Genreralized Method of Moments (GMM) estimation technique to check the robustness of the results.

The empirical outcomes of this study found a negative relationship of liquidity creation with profitability meanwhile positive relation with banking stability. However, this study shows a negative relation of political instability with liquidity creation, profitability and stability of overall banks of Pakistan.

The findings of this paper recommended the vital role of liquidity creation in the profitability and stability of banks, especially in the decision-making process of the investors and bank managers, and how it is affected strongly in the presence of an unstable political situation. These findings may be helpful for policymakers to devise appropriate policies to maintain a fair field between state authority and financial institutions and also assist in formulating strategies to strengthen the banking sector of Pakistan to avoid financial turmoil in the future.

As per the knowledge of the authors, this study is the first contribution to examine the moderating effect of political instability on liquidity creation, profitability and stability of the overall banking sector of Pakistan.

This paper aims to investigate the potential impact of the Basel III liquidity requirements, namely, the net stable funding ratio (NSFR) and the liquidity coverage ratio (LCR), on bank liquidity creation.

The authors developed a dynamic panel model using the Quasi-Maximum Likelihood estimation on an unbalanced panel dataset of 129 commercial banks operating in 10 Middle Eastern and North African (MENA) countries from 2009 to 2017.

The results show that the NSFR significantly negatively affects liquidity creation. Similarly, the LCR exerts a substantial negative impact on the liquidity creation of the sampled MENA banks. These findings suggest that complying with both liquidity requirements tends to curtail liquidity creation. Moreover, further regression analysis of large and small bank sub-samples uncovered results similar to the overall MENA sample.

The findings raise interesting policy implications and suggest a trade-off between the benefits of the financial resiliency induced by implementing liquidity requirements and the creation of liquidity essential for promoting economic growth in the region.

Most empirical research focuses on the relationship between bank capital and liquidity creation. To the knowledge, this paper is the first to provide empirical evidence on the effect of both the NSFR and LCR regulatory liquidity standards on bank liquidity creation in the MENA region.

The purpose of this paper is to explore the micro and macro factors affecting liquidity creation by scheduled commercial banks (excluding Regional Rural Bank) in India from 2005 to 2018.

Two measures of liquidity creation, the broad and narrow measures, are constructed using RBI data available on Indian banks. System generalized method of moments has been applied to explore the factors affecting liquidity creation.

This study finds high level of persistence in liquidity creation in banks. Variation in the broad measure is explained by equity ratio, market share, GDP, gross savings and lending rate, whereas the narrow measure is explained by equity ratio, market share, size and lending rate. The Global Financial Crisis had a negative effect on liquidity creation as per both the measures, and the impact was more severe for the broad measure as compared to the narrow measure.

This study finds a positive correlation between bank value and liquidity creation which suggests that the investors favourably evaluate banks that create more liquidity. This study is confined to India only.

There is a negative influence of capital on liquidity created by banks, which implies a trade-off that exists between financial stability and liquidity creation. Basel III norms impose higher capital and liquidity standards which will have negative implications for liquidity creation.

To the best of authors’ knowledge, this is the first study in the Indian context that focusses on factors affecting liquidity creation in a dynamic framework and determines the relationship between liquidity creation and market value of a bank.

The purpose of this paper is to examine the effect of bank capital on liquidity creation. Especially, the authors test two competing hypotheses: the “risk absorption” hypothesis and the “financial fragility-crowding out” hypothesis that describe such association in the context of UK and French banking industry.

The authors use data collected from Bankscope for commercial banks pertaining to the aforementioned countries. The sample period ranges from 2000 to 2014. Liquidity creation was measured using a novel approach proposed by Berger and Bouwman (2007). This study uses the quantile regression (QR) and the instrumental variables QR, along with classical ordinary least squares (OLS) and panel regression, to deal with the mixed results reported by previous papers.

Using OLS and panel regression, the authors first find that bank capital negatively affects liquidity creation which supports risk absorption hypothesis. Second, the result from QR confirms the negative association between the aforementioned variables and shows that the effect is homogenous across quantiles of liquidity creation distribution. The result remains unchanged when using the QR with instrumental variables to address the potential problem of endogeneity.

This paper sheds more lights on the relationship between bank capital and liquidity creation by using a novel estimation approach based on the QR methodology.

The purpose of this paper is to investigate how much liquidity banks create and how liquidity creation changed over time in the MENA countries and to examine the soundness of banks in these countries based on the CAME rating system, in addition to investigating the relationship between CAME ratios and liquidity creation of these banks.

The study regresses the CAME ratios together with other control variables to model liquidity creation. The robustness of the results is evaluated by using a different measure of liquidity creation and by excluding the observations of the Islamic banks.

The results show that the CAME rating system, as an indicator of bank soundness, is negatively related to bank liquidity creation. Specifically, capital adequacy, management efficiency and earning ability ratios affect the on-balance sheet components of liquidity creation, while asset quality ratio affects its off-balance sheet component.

The paper offers insights to regulators and banks managers in terms of better understanding of the negative relationship between CAME rating system and bank liquidity creation.

This paper sheds more light on the relationship between bank soundness and liquidity creation by using the ratios of the CAMEL rating system as an indicator of bank strength and soundness.