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Liquidity Creation, Bank Competition and Revenue Diversification

journal contribution
posted on 2023-07-17, 05:33 authored by VT Tran, Hoa NguyenHoa Nguyen
We examine the individual and joint effects of bank competition and revenue diversification on liquidity creation. We find that bank competition and revenue diversification have a positive impact on banks' propensity to create liquidity. Competition appears to primarily impact on-balance-sheet liquidity creation while revenue diversification is a key driver of off-balance-sheet liquidity creation. When considered together, each has a moderating effect on the other in relation to liquidity creation suggesting a substitution effect between competition and revenue diversification. Such substitution effect, however, is found predominantly for small and medium banks and during crisis periods. Our findings suggest that policymakers and regulators should be cautious of a one-size-fits-All approach to bank competition and revenue diversification in promoting bank stability.

History

Journal

Quarterly Journal of Finance

Location

Singapore

ISSN

2010-1392

eISSN

2010-1406

Language

English

Publication classification

C1 Refereed article in a scholarly journal

Publisher

WORLD SCIENTIFIC PUBL CO PTE LTD