Bank Liquidity Hoarding Strategies in Uncertain Times: New Evidence from an Emerging Market with Bank-level Data

The paper explores the impact of uncertainty on bank liquidity hoarding, particularly providing new insights on the nature of the impact by bank-level heterogeneity. We consider the cross-sectional dispersion of shocks to key bank variables to estimate uncertainty in the banking sector and include a...

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Bibliographic Details
Published in:Organizations and markets in emerging economies 2021-01, Vol.12 (2), p.377-398
Main Authors: Dang, Van Dan, Nguyen, Hoang Chung
Format: Article
Language:English
Subjects:
Balance sheets
Bank liquidity
Banking industry
banking uncertainty
Banks
cross-sectional dispersion
Economic policy
emerging market
Emerging markets
Hoarding disorder
International finance
Liquid assets
liquidity hoarding
search for yield
Securities markets
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Summary:The paper explores the impact of uncertainty on bank liquidity hoarding, particularly providing new insights on the nature of the impact by bank-level heterogeneity. We consider the cross-sectional dispersion of shocks to key bank variables to estimate uncertainty in the banking sector and include all banking items to construct a comprehensive measure of bank liquidity hoarding. Using a sample of Vietnamese banks during 2007–2019, we document that banks tend to increase total liquidity hoarding in response to higher uncertainty; this pattern is still valid for on- and off-balance sheet liquidity hoarding. Further analysis with bank-level heterogeneity indicates that the impact of banking uncertainty on liquidity hoarding is significantly stronger for weaker banks, i. e., banks that are smaller, more poorly capitalized, and riskier. In testing the “search for yield” hypothesis to explain the linkage between uncertainty and bank liquidity hoarding, we do not find it to be the case. Our findings remain extremely robust after multiple robustness tests.
ISSN:2029-4581
2345-0037
DOI:10.15388/omee.2021.12.61