Bank Liquidity Creation

Posted: 8 Sep 2009

See all articles by Allen N. Berger

Allen N. Berger

University of South Carolina - Darla Moore School of Business; Wharton Financial Institutions Center; European Banking Center

Christa H. S. Bouwman

Texas A&M University; Wharton Financial Institutions Center

Date Written: September 2009

Abstract

Although the modern theory of financial intermediation portrays liquidity creation as an essential role of banks, comprehensive measures of bank liquidity creation do not exist. We construct four measures and apply them to data on virtually all U.S. banks from 1993 to 2003. We find that bank liquidity creation increased every year and exceeded $2.8 trillion in 2003. Large banks, multibank holding company members, retail banks, and recently merged banks created the most liquidity. Bank liquidity creation is positively correlated with bank value. Testing recent theories of the relationship between capital and liquidity creation, we find that the relationship is positive for large banks and negative for small banks.

Keywords: G32, G28, G21

Suggested Citation

Berger, Allen N. and Bouwman, Christa H. S., Bank Liquidity Creation (September 2009). The Review of Financial Studies, Vol. 22, Issue 9, pp. 3779-3837, 2009. Available at SSRN: https://ssrn.com/abstract=1468195 or http://dx.doi.org/hhn104

Allen N. Berger (Contact Author)

University of South Carolina - Darla Moore School of Business ( email )

1705 College St
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Columbia, SC 29208
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Wharton Financial Institutions Center

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European Banking Center

P.O. Box 90153
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Netherlands

Christa H. S. Bouwman

Texas A&M University ( email )

360H Wehner
College Station, TX 77843-4218
United States
979-845-3514 (Phone)
979-845-3514 (Fax)

HOME PAGE: http://people.tamu.edu/~cbouwman/

Wharton Financial Institutions Center

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