Bank liquidity creation, monetary policy, and financial crises Academic Article

abstract

• 2017 Elsevier B.V. This paper examines the interplay among bank liquidity creation (which incorporates all bank on- and off-balance sheet activities), monetary policy, and financial crises. We find that: (1) high liquidity creation (relative to trend) particularly off-balance sheet liquidity creation helps predict crises, controlling for other factors; (2) monetary policy has statistically significant, but economically minor effects on liquidity creation by small banks during normal times, and these effects are even weaker during financial crises; (3) monetary policy has very little effects on medium and large bank liquidity creation during both normal times and crises. These findings suggest that authorities may wish to monitor bank liquidity creation closely in order to predict and perhaps lessen the likelihood of financial crises. They might also consider other tools to control bank liquidity creation, such as capital and liquidity requirements.

authors

• Bouwman, Christa

published proceedings

• Journal of Financial Stability

altmetric score

• 3

author list (cited authors)

• Berger, A. N., & Bouwman, C.

citation count

• 139

complete list of authors

• Berger, Allen N||Bouwman, Christa HS

publication date

• January 2017

publisher

• Elsevier  Publisher

published in

• Journal of Financial Stability  Journal

keywords

• Banking
• Financial Crises
• Liquidity Creation
• Monetary Policy

Digital Object Identifier (DOI)

• 10.1016/j.jfs.2017.05.001

start page

• 139

end page

• 155

volume

• 30

URL

• http://dx.doi.org/10.1016/j.jfs.2017.05.001

user-defined tag

• 8 Decent Work and Economic Growth