Dr. Ghulame Rubbaniy Ghulame.Rubbaniy@uwe.ac.uk
Senior Lecturer in Accounting and Finance
Cyclicality of liquidity creation: Nonlinear evidence from US bank holding companies
Rubbaniy, Ghulame; Khalid, Ali Awais; Ali, Shoaib; Polyzos, Stathis
Authors
Ali Awais Khalid
Shoaib Ali
Stathis Polyzos
Abstract
Using a panel smooth transition regression framework on a new proxy of the business cycle (BC) index and quarterly data of US bank holding companies from 1993Q1 to 2020Q1, our results provide empirical support for the theory that the BC has a nonlinear effect on liquidity creation. We find a positive and highly significant nonlinear effect of the BC on liquidity creation, which not only supports the pro-cyclicality of liquidity creation but also improves the liquidity creation estimation compared to previous studies. The results are robust to different proxies of the BC and model specifications. We also document that US bank holding companies create liquidity more during the expansion phase (normal times) than during the recession phase (crisis times) of the BC, suggesting an asymmetrical effect of BC changes on liquidity creation. Our findings have important implications for financial market participants by suggesting that banks should keep alternative sources of funding on hand during the BC recession phase. Insights from our study also provide policy implications for central banks and prudent supervisors to consider when incentivizing banks, for instance, by lowering regulatory requirements, adjusting the policy rate, or implementing any other quantitative easing policy during the BC recession phase to keep the financial system efficient.
| Journal Article Type | Article |
|---|---|
| Acceptance Date | Mar 22, 2023 |
| Online Publication Date | Sep 6, 2023 |
| Publication Date | Mar 31, 2023 |
| Deposit Date | Aug 2, 2023 |
| Publicly Available Date | Apr 1, 2025 |
| Journal | Journal of Financial Research |
| Print ISSN | 0270-2592 |
| Electronic ISSN | 1475-6803 |
| Publisher | Wiley |
| Peer Reviewed | Peer Reviewed |
| Volume | 46 |
| Issue | 4 |
| Pages | 1165-1185 |
| DOI | https://doi.org/10.1111/jfir.12352 |
| Keywords | Finance, Accounting |
| Public URL | https://uwe-repository.worktribe.com/output/11001464 |
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Copyright Statement
This is the peer reviewed version of the following article: Rubbaniy, G., Khalid, A. A., Ali, S., & Polyzos, S. (2023). Cyclicality of liquidity creation: Nonlinear evidence from US bank holding companies. Journal of Financial Research, 46(4), 1165-1185, which has been published in final form at https://doi.org/10.1111/jfir.12352. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions. This article may not be enhanced, enriched or otherwise transformed into a derivative work, without express permission from Wiley or by statutory rights under applicable legislation. Copyright notices must not be removed, obscured or modified. The article must be linked to Wiley’s version of record on Wiley Online Library and any embedding, framing or otherwise making available the article or pages thereof by third parties from platforms, services and websites other than Wiley Online Library must be prohibited.
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