Liquidity Risk Drivers and Bank Business Models
This paper examines the bank liquidity risk while using a maturity mismatch indicator of loans and deposits (LTD<sub>m</sub>) during a specific period. Core banking activities that are based on the process of maturity transformation are the most exposed to liquidity risk. The financial c...
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Format: | Article |
Language: | English |
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MDPI AG
2019-08-01
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Series: | Risks |
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Online Access: | https://www.mdpi.com/2227-9091/7/3/89 |
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author | Simona Galletta Sebastiano Mazzù |
author_facet | Simona Galletta Sebastiano Mazzù |
author_sort | Simona Galletta |
collection | DOAJ |
description | This paper examines the bank liquidity risk while using a maturity mismatch indicator of loans and deposits (LTD<sub>m</sub>) during a specific period. Core banking activities that are based on the process of maturity transformation are the most exposed to liquidity risk. The financial crisis in 2007−2009 highlighted the importance of liquidity to the functioning of both the financial markets and the banking sector. We investigate how characteristics of a bank, such as size, capital, and business model, are related to liquidity risk, while using a sample of European banks in the period after the financial crisis, from 2011 to 2017. While employing a generalized method of moment two-step estimator, we find that the banking size increases the liquidity risk, whereas capital is not an effective deterrent. Moreover, our findings reveal that, for savings banks, income diversification raises the liquidity risk while investment banks reliant on non-deposit funding decrease the exposure to liquidity risk. |
first_indexed | 2024-12-12T00:09:39Z |
format | Article |
id | doaj.art-b66ed6ff5f2348f384659242d3d2dc03 |
institution | Directory Open Access Journal |
issn | 2227-9091 |
language | English |
last_indexed | 2024-12-12T00:09:39Z |
publishDate | 2019-08-01 |
publisher | MDPI AG |
record_format | Article |
series | Risks |
spelling | doaj.art-b66ed6ff5f2348f384659242d3d2dc032022-12-22T00:45:00ZengMDPI AGRisks2227-90912019-08-01738910.3390/risks7030089risks7030089Liquidity Risk Drivers and Bank Business ModelsSimona Galletta0Sebastiano Mazzù1Department of Economics, University of Messina, Piazza Pugliatti, 1, 98122 Messina, ItalyDepartment of Economics and Business, University of Catania, Corso Italia 55, 95129 Catania, ItalyThis paper examines the bank liquidity risk while using a maturity mismatch indicator of loans and deposits (LTD<sub>m</sub>) during a specific period. Core banking activities that are based on the process of maturity transformation are the most exposed to liquidity risk. The financial crisis in 2007−2009 highlighted the importance of liquidity to the functioning of both the financial markets and the banking sector. We investigate how characteristics of a bank, such as size, capital, and business model, are related to liquidity risk, while using a sample of European banks in the period after the financial crisis, from 2011 to 2017. While employing a generalized method of moment two-step estimator, we find that the banking size increases the liquidity risk, whereas capital is not an effective deterrent. Moreover, our findings reveal that, for savings banks, income diversification raises the liquidity risk while investment banks reliant on non-deposit funding decrease the exposure to liquidity risk.https://www.mdpi.com/2227-9091/7/3/89bank riskbusiness modelsliquidity riskmaturity mismatch |
spellingShingle | Simona Galletta Sebastiano Mazzù Liquidity Risk Drivers and Bank Business Models Risks bank risk business models liquidity risk maturity mismatch |
title | Liquidity Risk Drivers and Bank Business Models |
title_full | Liquidity Risk Drivers and Bank Business Models |
title_fullStr | Liquidity Risk Drivers and Bank Business Models |
title_full_unstemmed | Liquidity Risk Drivers and Bank Business Models |
title_short | Liquidity Risk Drivers and Bank Business Models |
title_sort | liquidity risk drivers and bank business models |
topic | bank risk business models liquidity risk maturity mismatch |
url | https://www.mdpi.com/2227-9091/7/3/89 |
work_keys_str_mv | AT simonagalletta liquidityriskdriversandbankbusinessmodels AT sebastianomazzu liquidityriskdriversandbankbusinessmodels |