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Do efficient banks create more liquidity: international evidence

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  • Duan, Yuejiao
  • Fan, Xiaoyun
  • Li, Xinming
  • Rong, Yuhao
  • Shi, Benye

Abstract

It is revealed in the literature that bank liquidity creation promotes growth in the real economy. From the efficiency perspective, this work analyzes another potential determinant of bank liquidity creation. We find that banks with lower efficiency create less liquidity for the public after controlling for bank-level and country-level characteristics. The results are robust for subsample tests and alternative efficiency measures. It indicates that banks may better fulfill their liquidity creation function for the public either by reducing their cost burden or by improving their profit efficiency level.

Suggested Citation

  • Duan, Yuejiao & Fan, Xiaoyun & Li, Xinming & Rong, Yuhao & Shi, Benye, 2021. "Do efficient banks create more liquidity: international evidence," Finance Research Letters, Elsevier, vol. 42(C).
    • Handle: RePEc:eee:finlet:v:42:y:2021:i:c:s1544612320317335
    DOI: 10.1016/j.frl.2020.101919
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