Bank Liquidity Creation

Although the modern theory of financial intermediation portrays liquidity creation as an essential role of banks, comprehensive measures of bank liquidity creation do not exist. We construct four measures and apply them to data on virtually all U. S. banks from 1993 to 2003. We find that bank liquid...

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Bibliographic Details
Published in:The Review of financial studies 2009-09, Vol.22 (9), p.3779-3837
Main Authors: Berger, Allen N., Bouwman, Christa H. S.
Format: Article
Language:English
Subjects:
Balance sheets
Bank assets
Bank capital
Bank liabilities
Bank liquidity
Bank loans
Bank management
Bank markets
Bank operations
Bank regulation
Banking industry
Banking law
Banking system
Banks
Capital creation
Capital markets
Capital ratios
Capital structure
Central banks
Commercial banks
Corporate governance
Deposit insurance
Economics
Financial institutions
Hedging
Lines of credit
Liquid assets
Loans
Monetary policy
Political economy
Regulation of financial institutions
Retail banking
Studies
U.S.A
Valuation
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Summary:Although the modern theory of financial intermediation portrays liquidity creation as an essential role of banks, comprehensive measures of bank liquidity creation do not exist. We construct four measures and apply them to data on virtually all U. S. banks from 1993 to 2003. We find that bank liquidity creation increased every year and exceeded $2.8 trillion in 2003. Large banks, multibank holding company members, retail banks, and recently merged banks created the most liquidity. Bank liquidity creation is positively correlated with bank value. Testing recent theories of the relationship between capital and liquidity creation, we find that the relationship is positive for large banks and negative for small banks.
ISSN:0893-9454
1465-7368
DOI:10.1093/rfs/hhn104