The interrelationship between bank capital and liquidity creation: A non-linear perspective from the Asia-Pacific regionJuhi Gupta, Smita Kashiramka, Kim Cuong Ly and Ha Pham International Review of Economics & Finance, 2023, vol. 85, issue C, 793-820 Abstract: The study investigates nonlinearity in the interrelationship between liquidity creation (LC) and bank capital. It addresses the reverse-causality concerns by employing a simultaneous equations model with a two-step system GMM estimator. The data comprises 597 commercial banks in the Asia-Pacific region from 2006 to 2019. The findings indicate a U-shaped bi-directional relationship between bank capital and LC, with a significant moderating effect of bank size. The results also hold for Advanced economies (AEs), Basel II and Basel III periods. However, there is an inverted U-shaped impact of capital on LC in the Emerging market and developing economies (EMDEs). The findings call for coordination between liquidity and capital regulations. Further, policymakers should adopt a tailored regulatory approach for banks instead of uniform blanket regulations, as the latter might prove to be counterproductive. Keywords: Bank liquidity creation; Bank capital; Bank regulation; Asia-Pacific; Basel III (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:85:y:2023:i:c:p:793-820 DOI: 10.1016/j.iref.2023.02.017 Access Statistics for this article International Review of Economics & Finance is currently edited by H. Beladi and C. Chen More articles in International Review of Economics & Finance from Elsevier |
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