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1 – 10 of over 12000
Article
Publication date: 1 February 2002

GEORGE L. YE

Liquidity risk, i.e., the likelihood that a swap can be “sold” (i.e., assigned) may affect swap prices. This article addresses the importance of liquidity risk as a factor…

Abstract

Liquidity risk, i.e., the likelihood that a swap can be “sold” (i.e., assigned) may affect swap prices. This article addresses the importance of liquidity risk as a factor in the valuation of swaps, which are subject to default risk. The author presents a model for pricing these swaps by incorporating a proxy for liquidity risk. Using the model, the author finds that the effects of liquidity risk may partially offset the effects of default risk.

Details

The Journal of Risk Finance, vol. 3 no. 3
Type: Research Article
ISSN: 1526-5943

Article
Publication date: 28 January 2022

Adamu Yahaya, Fauziah Mahat, Yahya M.H. and Bolaji Tunde Matemilola

This study aims to examine the effect of liquidity risk on deposit money banks’ (DMBs) performance in Sub-Saharan Africa. This study also tests the interaction effect of…

Abstract

Purpose

This study aims to examine the effect of liquidity risk on deposit money banks’ (DMBs) performance in Sub-Saharan Africa. This study also tests the interaction effect of liquidity risk and nonperforming loans on the performance of DMBs’ in Sub-Saharan Africa.

Design/methodology/approach

This study uses a two-step system generalized method of moment to test the influence of liquidity risk on DMBs’ performance in Sub-Saharan Africa. A sample of 50 listed banks across six Sub-Saharan African countries, including Nigeria, Ghana, South Africa, Zambia, Kenya and Tanzania, were used. The bank performance proxy used are return on asset and return on equity, while net interest margin is used for robustness check.

Findings

The study’s findings reveal a significant and negative association between liquidity risk and bank performance. Moreover, the relationship between the nonperforming loan and bank performance is negative and significant. Furthermore, the interaction effect of liquidity risk and nonperforming loans on bank performance is found to be significantly negative for the two proxies of bank performance. The result is robust for the alternative bank performance measurements and econometric model, which adequately addresses endogeneity tendency.

Originality/value

To the best of the researchers’ knowledge, this is one of the earliest empirical studies that examine the effect of liquidity risk on DMBs’ performance across Sub-Saharan African countries. This study further differs from previous studies with the interaction term of liquidity risk and nonperforming loan included in the model.

Details

Journal of Financial Regulation and Compliance, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1358-1988

Keywords

Abstract

Details

The Banking Sector Under Financial Stability
Type: Book
ISBN: 978-1-78769-681-5

Article
Publication date: 20 January 2022

Etienne Harb, Rim El Khoury, Nadia Mansour and Rima Daou

The credit crunch of 2008 and recent COVID-19 influences underscored the importance of liquidity and credit risk management in businesses and financial institutions. The…

Abstract

Purpose

The credit crunch of 2008 and recent COVID-19 influences underscored the importance of liquidity and credit risk management in businesses and financial institutions. The purpose of this study is to investigate the impact of liquidity risk and credit risk management on accounting and market performances of banks operating in the Middle East and North Africa (MENA) region.

Design/methodology/approach

This study uses a panel data regression analysis on a sample of 51 listed commercial banks operating in 10 MENA countries during the period 2010–2018.

Findings

The results show that credit risk management does not affect the accounting performance of banks, while it has a non-linear, convex relationship with market performance. Surprisingly, liquidity risk management is not a significant driver for either performance measure in studied banks. However, when a bank combines credit risk management with liquidity risk management efforts, liquidity risk management actions return significant results on both performances, illustrated by an inverted U-shaped relationship. In addition, this study examines the joint impact of both risks on bank performance. This study reveals that accounting and market performances are differently affected by joint risk management efforts. Their impact depends on the combination of risk management ratios upon which banks choose to focus their efforts.

Practical implications

The findings help bankers and regulators further consider non-linearities and offer them new tools for managing the impact of credit and liquidity risk interactions towards achieving more financial stability.

Originality/value

These results contribute to traditional banking in offering bankers and regulators new tools for managing the impact of credit and liquidity risk interactions on bank performance.

Details

Journal of Financial Reporting and Accounting, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1985-2517

Keywords

Article
Publication date: 24 October 2021

Emmanuel Carsamer, Anthony Abbam and Yaw N. Queku

Capital, risk and liquidity are the vitality of the banking industry, which can improve the efficiency of banking and promote the efficiency of resource allocation. The…

Abstract

Purpose

Capital, risk and liquidity are the vitality of the banking industry, which can improve the efficiency of banking and promote the efficiency of resource allocation. The purpose of this study is to examine how Basel III new liquidity ratios affect bank capital and risk adjustments and how banks respond to the new liquidity rules.

Design/methodology/approach

The authors adopted the system generalized method of moments (GMM) to examine how Basel III new liquidity ratios affect bank capital and risk adjustments and how banks respond to the new liquidity rules. Based on the call reports data from banks, GMM was used to test the hypotheses that new liquidity ratios affect bank capital and risk adjustments, as well as how banks respond to the regulation.

Findings

The results indicate banks targeted capital, risk and liquidity and simultaneously coordinate short-term adjustments in capital and risk. New liquidity measures enable banks to coordinate risk and liquidity decisions. Short-term adjustments in new liquidity rules inversely impact bank capital. Short-term adjustments in new liquidity rules inversely impact bank capital and capital adjustments adversely affect changes in the liquidity coverage ratio (LCR).

Research limitations/implications

The primary results revealed that Ghanaian banks simultaneously coordinate and target capital, risk exposure and liquidity level. Also, capital adjustments positively influence risk adjustments and vice versa while bidirectional negative coordination exists between bank capital and risk on one hand and liquidity on the other hand. Short-term adjustments in new liquidity rule inversely impact bank capital and capital adjustments adversely affect changes in the LCR. The findings partially confirm the theoretical predictions of Repullo (2005) regarding the negative links between capital, risk and liquidity but the authors have higher capital induces higher risk.

Practical implications

Banks should balance off their targeted risk and liquidity in order not to sacrifice capital accumulation for liquidity.

Originality/value

This research offers new contributions in the research of bank management of capital and liquidity toward banks during a financial crisis from a theoretical perspective and trust management from an applicative perspective.

Details

Journal of Financial Regulation and Compliance, vol. 30 no. 2
Type: Research Article
ISSN: 1358-1988

Keywords

Article
Publication date: 26 May 2021

Carla Henriques and Elisabete Neves

This paper aims to explore the trade-off between liquidity, risk and return under sectoral diversification across distinct economic settings and investment strategies.

Abstract

Purpose

This paper aims to explore the trade-off between liquidity, risk and return under sectoral diversification across distinct economic settings and investment strategies.

Design/methodology/approach

A novel multi-objective portfolio model is proposed to assess investment decisions under sectoral diversification, where the objective functions and constraints are interval-valued. The objective functions used are risk minimization (through the semi-absolute deviation measure of risk), maximization of liquidity (using turnover as a proxy) and the maximization of logarithmic return. Besides coherence constraints (imposing that the sum of the percentages of investment assigned to each stock should be equal to 100%), constraints regarding the maximum proportion of capital that can be invested (ensuring a minimum level of diversification) and cardinality constraints (to account for transaction costs) are also imposed.

Findings

Besides the trade-off between return and risk, the study findings highlight a trade-off between liquidity and return and a positive relationship between risk and liquidity. Under an economic crisis scenario, the trade-off between return and liquidity is reduced. With the economic recovery, the levels of risk increase when contrasted with the setting of the economic crisis. The highest liquidity levels are reached with the economic boom, whereas the highest returns are obtained with the economic recession.

Originality/value

This paper suggests a new modeling approach for assessing the trade-offs between liquidity, risk and return under different scenarios and investment strategies. A new interactive procedure inspired on the reference point approach is also proposed to obtain possibly efficient portfolios according to the investor's preferences. Regarding previous approaches suggested in the literature, this new procedure allows obtaining both supported and unsupported efficient solutions when cardinality constraints are included.

Article
Publication date: 16 November 2020

Ameni Ghenimi, Hasna Chaibi and Mohamed Ali Brahim Omri

This paper aims to identify and analyze the similarities and differences of the liquidity risk determinants within conventional and Islamic banks.

Abstract

Purpose

This paper aims to identify and analyze the similarities and differences of the liquidity risk determinants within conventional and Islamic banks.

Design/methodology/approach

This study uses a dynamic panel data approach to examine the relationship between liquidity risk and a set of bank-specific and macroeconomic factors during 2005–2015, by selecting 27 Islamic banks and 49 conventional ones operating in the MENA region. More specifically, the dynamic two-step generalized method of moment estimator technique introduced by Arellano and Bond (1991) is applied.

Findings

The results suggest that the set of bank-specific variables influences the liquidity risk of both banking systems, while macroeconomic factors determine the liquidity risk of conventional banks. Islamic banks are not affected by macroeconomic determinants.

Practical implications

The research facilitates to the academicians, practitioners and bankers to have an alluded picture about liquidity risk determinants and their management. The findings can be used by bankers’ policy decision-makers to improve and enhance their consideration for liquidity risk management in both banking systems. Indeed, the study makes them aware to manage liquidity risk differently between conventional and Islamic banks, as the results reveal different liquidity risk determinants.

Originality/value

Compared to the abundant studies on the determinants of credit risk, researchers have not sufficiently addressed the factors influencing liquidity risk. Moreover, none of these few research studies has discussed and compared liquidity risk determinants within both banking systems operating in the Middle East and North Africa (MENA) region. This leads us to identify the similarities and differences between conventional and Islamic banks in the MENA region in respect of systematic and unsystematic determinants of the liquidity risk. The value is attributed to the increasing differentiation between Islamic and conventional banks. Islamic banks are characterized with a different liquidity structure distinguishing them from their conventional counterparts.

Details

International Journal of Law and Management, vol. 63 no. 1
Type: Research Article
ISSN: 1754-243X

Keywords

Article
Publication date: 25 March 2021

Tu D.Q. Le and Xuan T.T. Pham

This study investigates the inter-relationships among liquidity creation, bank capital and credit risk in selected emerging economies between 2012 and 2016.

Abstract

Purpose

This study investigates the inter-relationships among liquidity creation, bank capital and credit risk in selected emerging economies between 2012 and 2016.

Design/methodology/approach

A three-step procedure as proposed by Berger and Bouwman (2009) is used to measure liquidity creation. Thereafter, a simultaneous equations model with the generalized method of moments (GMM) estimator is used to examine the links between liquidity creation, bank capital and credit risk.

Findings

The findings indicate that bank capital and credit risk affect each other positively after controlling for liquidity creation. Also, the findings show a negative impact of credit risk on liquidity creation while our findings do not find any evidence to confirm the reverse relationship between them. Furthermore, the findings demonstrate a two-way negative relationship between liquidity creation and bank capital in these emerging economies. Finally, the results indicate a positive relationship between capital and credit risk, especially in the case of small banks in the sample.

Practical implications

The findings suggest that the trade-off between the benefits of financial stability induced by tightening capital requirements and those of improved liquidity creation has crucial implications for policymakers and bank regulators in making the banking system more resilient. A positive impact of capital on credit risk emphasizes that the authorities in selected emerging economies should put more attention on small banks to ensure their exposures under target control.

Originality/value

This is the first study that examines the dynamic interrelationships among liquidity creation, bank capital and credit risk in the Asia–Pacific region.

Details

Managerial Finance, vol. 47 no. 8
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 4 May 2012

Ahmed Arif and Ahmed Nauman Anees

The purpose of this paper is to examine liquidity risk in Pakistani banks and evaluate the effect on banks' profitability.

14843

Abstract

Purpose

The purpose of this paper is to examine liquidity risk in Pakistani banks and evaluate the effect on banks' profitability.

Design/methodology/approach

Data are retrieved from the balance sheets, income statements and notes of 22 Pakistani banks during 2004‐2009. Multiple regressions are applied to assess the impact of liquidity risk on banks' profitability.

Findings

The results of multiple regressions show that liquidity risk affects bank profitability significantly, with liquidity gap and non‐performing as the two factors exacerbating the liquidity risk. They have a negative relationship with profitability.

Research limitations/implications

The period studied in this paper is 2004‐2009, due to availability of the data. However, the sample period does not impair the findings since the sample includes 22 banks, which constitute the main part of the Pakistani banking system. Moreover, only profitability is used as the measure of performance. Economic factors contributing to liquidity risk are not covered in this paper.

Originality/value

This is the first paper addressing the liquidity risk faced by the Pakistani banking system. Past researchers and practitioners have not given the proper attention to liquidity risk. This paper helps in understanding the factors of liquidity risk and their impact on the profitability of the banking system. The authors emphasise contemporary risk managers to mitigate liquidity risk by having sufficient cash resources. This will reduce the liquidity gap, thereby reducing the dependence on repo market.

Details

Journal of Financial Regulation and Compliance, vol. 20 no. 2
Type: Research Article
ISSN: 1358-1988

Keywords

Article
Publication date: 13 February 2017

Nevine Sobhy Abdel Megeid

This research aims to analyze and compare the effectiveness of liquidity risk management of Islamic and conventional banking in Egypt to ascertain which of the two banking…

3974

Abstract

Purpose

This research aims to analyze and compare the effectiveness of liquidity risk management of Islamic and conventional banking in Egypt to ascertain which of the two banking systems are performing better.

Design/methodology/approach

A sample of six conventional banks (CBs) and two Islamic banks (IBs) in Egypt was selected. Using the liquidity ratios, the investigation involves analyzing the financial statements for the period of 2004-2011. The data were obtained from Bank scope database.

Findings

The research found that in Egypt, CBs perform better in terms of liquidity risk management than IBs. The liquidity risk management significant differences between IBs and CBs could be attributed more cash availability to CBs than to IBs, in addition, Egyptian Central Bank regulations on capital and liquidity requirements for IBs disconcert IBs’ performance.

Practical implications

This research facilitates the bankers, academician, scholars and bankers to have an alluded picture about Egyptian banking developments in liquidity risk management. The results can be used by bankers’ policy decision-makers to improve and enhance their consideration for liquidity risk management.

Originality/value

This research covers a period and a country that compares CBs’ and IBs’ liquidity risk management. Its value is attributed to the increasing differentiation between CBs and IBs.

Details

Journal of Islamic Accounting and Business Research, vol. 8 no. 1
Type: Research Article
ISSN: 1759-0817

Keywords

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