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Liquidity effects in banks’ capital allocation decisions

Author

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  • De Alcântara, Wenersamy Ramos

Abstract

Risk-adjusted models for capital allocation are now well known and still evolving. This paper contributes to the evolution of these models by pointing out liquidity effects that are currently ignored. This paper proposes a risk-adjusted model for banks’ capital allocation decisions that incorporates the banks’ default risk reduction of investing in liquid assets, offsetting the positive economic profit advantages of illiquid assets.

Suggested Citation

  • De Alcântara, Wenersamy Ramos, 2015. "Liquidity effects in banks’ capital allocation decisions," Journal of Risk Management in Financial Institutions, Henry Stewart Publications, vol. 8(2), pages 163-170, March.
    • Handle: RePEc:aza:rmfi00:y:2015:v:8:i:2:p:163-170
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    More about this item

    Keywords

    risk-adjusted returns; liquidity; capital allocation;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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