Bank Liquidity Creation and Real Economic Output

47 Pages Posted: 29 Oct 2014 Last revised: 19 Apr 2017

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

John Sedunov

Villanova University - Department of Finance

Date Written: January 17, 2017

Abstract

We find that bank liquidity creation (LC) is statistically and economically significantly positively related to real economic output (GDP). This is robust to using instrumental variables and many robustness checks. LC also beats bank assets in “horse races.” On-balance sheet LC matters more for small banks and off-balance sheet LC matters more for large banks. Small bank LC generates more GDP per dollar than large bank LC, but large bank LC matters more overall because large banks provide much more LC than small banks. The LC-output relation is strongest in bank-dependent industries, consistent with the hypothesized transmission mechanism.

Keywords: Banks, Liquidity Creation, GDP, Economic Output

JEL Classification: G20, G21, O40, O43

Suggested Citation

Berger, Allen N. and Sedunov, John, Bank Liquidity Creation and Real Economic Output (January 17, 2017). Journal of Banking and Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2515361 or http://dx.doi.org/10.2139/ssrn.2515361

Allen N. Berger

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

1705 College St
Francis M. Hipp Building
Columbia, SC 29208
United States
803-576-8440 (Phone)
803-777-6876 (Fax)

Wharton Financial Institutions Center

Philadelphia, PA 19104-6367
United States

European Banking Center

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

John Sedunov (Contact Author)

Villanova University - Department of Finance ( email )

800 Lancaster Ave.
Villanova, PA 19085
United States
610-519-4374 (Phone)

HOME PAGE: http://homepage.villanova.edu/john.sedunov/

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