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Estimating Liquidity Created by Banks in Pakistan

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  • Sabahat

    (State Bank of Pakistan)

Abstract

The saving-investment facilitation, the core function of the banking system results in liquidity creation. The on-balance sheet and off-balance sheet activities of banks play a vital role in liquidity provision: banks create liquidity while actively managing their portfolios of assets and liabilities of different maturities. This study attempts to measure the liquidity created by Pakistan’s banking system using methods employed by Berger and Bouwman (2009). Four measures LIC-C1, LIC-C2, LIC-T1 and LIC-T2 have been constructed for banks. We also group banks according to their size. Analyses of these measures indicate that, compared to other measures, the LIC-C1 measure records the highest amount of liquidity created during Sep07-Jun16. In absolute terms, liquidity of Rs 2.55 trillion was created at the end of Jun 2016, equal to 16.5 percent of the total assets of the banking industry. Further, a disaggregated analysis shows that most of the participation has come from large banks; medium sized banks’ ability remained subdued, whereas the group of small banks performed well in liquidity provision.

Suggested Citation

  • Sabahat, 2017. "Estimating Liquidity Created by Banks in Pakistan," SBP Working Paper Series 86, State Bank of Pakistan, Research Department.
    • Handle: RePEc:sbp:wpaper:86
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    File URL: http://www.sbp.org.pk/publications/wpapers/2017/wp86.pdf
    File Function: First version, 2017
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    Citations

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    Cited by:

    1. Muhammad Farhan Basheer & Waeibrorheem Waemustafa & Mohamad Helmi Bin Hidthiir & Saira Ghulam Hassan, 2021. "Explaining the endogeneity between the credit risk, liquidity risk, and off-balance sheet activities in commercial banks: a case of South Asian economies," International Journal of Monetary Economics and Finance, Inderscience Enterprises Ltd, vol. 14(2), pages 166-187.
    2. Chen, Simiao & Prettner, Klaus & Kuhn, Michael & Bloom, David E., 2021. "The economic burden of COVID-19 in the United States: Estimates and projections under an infection-based herd immunity approach," The Journal of the Economics of Ageing, Elsevier, vol. 20(C).
    3. Sinha, Pankaj & Grover, Naina, 2019. "Estimation of liquidity created by banks in India," MPRA Paper 92563, University Library of Munich, Germany.

    More about this item

    Keywords

    Liquidity Creation; Banking System; Balance Sheet;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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