Do Banks Actively Manage Their Liquidity?

55 Pages Posted: 22 Mar 2015 Last revised: 14 Dec 2016

See all articles by Robert DeYoung

Robert DeYoung

University of Kansas School of Business

Karen Y. Jang

Florida International University

Date Written: October 1, 2015


We test whether and how U.S. commercial banks actively managed their liquidity positions between 1992 and 2012, prior to the implementation of the Basel III liquidity rules. On average, the data are consistent with a liquidity management regime in which banks targeted the traditional loans-to-core deposits (LTCD) ratio. Perhaps surprisingly, the data are also consistent on average with the net stable funding ratio (NSFR), a regulatory liquidity ratio that was not introduced until 2010. We find evidence of LTCD and (implicit) NSFR targeting at banks of all sizes, but concordance is strongest for small banks and weakest for so-called SIFI banks. As banks increase in size, they set lower liquidity targets — often in violation of the coming Basel III standards — but manage those targets more efficiently.

Keywords: commercial banks, core deposits, liquidity management, partial adjustment models

JEL Classification: G21, G28

Suggested Citation

DeYoung, Robert and Jang, Karen Y., Do Banks Actively Manage Their Liquidity? (October 1, 2015). Journal of Banking and Finance, 66 (2016) 143-161. Available at SSRN: or

Robert DeYoung

University of Kansas School of Business ( email )

Capitol Federal Hall
1654 Naismith Drive
Lawrence, KS 66045
United States
785-864-1806 (Phone)

Karen Y. Jang (Contact Author)

Florida International University ( email )

11200 SW 8th Street RB228A
Miami, FL 33199
United States

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