The Determinants of Bank Liquid Asset Holdings

Fisher College of Business Working Paper No. 2022-03-005

Charles A. Dice Center Working Paper No. 2022-03-05

73 Pages Posted: 22 Jul 2022

See all articles by René M. Stulz

René M. Stulz

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Alvaro G. Taboada

Mississippi State University

Mathijs A. van Dijk

Erasmus University Rotterdam (EUR)

Date Written: July 20, 2022

Abstract

Bank liquid asset holdings vary significantly across banks and through time. The determinants of liquid asset holdings from the corporate finance literature are not useful to predict banks’ liquid asset holdings. Banks have an investment motive to hold liquid assets, so that when their lending opportunities are better, they hold fewer liquid assets. We find strong support for the investment motive. Large banks hold much more liquid assets after the Global Financial Crisis (GFC), and this change cannot be explained using models of liquid asset holdings estimated before the GFC. We find evidence supportive of the hypothesis that the increase in liquid assets of large banks is due at least in part to the post-GFC regulatory changes.

Keywords: bank, liquidity, reserves, loans, LCR, capital requirements

JEL Classification: G21, G28

Suggested Citation

Stulz, Rene M. and Taboada, Alvaro G. and van Dijk, Mathijs A., The Determinants of Bank Liquid Asset Holdings (July 20, 2022). Fisher College of Business Working Paper No. 2022-03-005, Charles A. Dice Center Working Paper No. 2022-03-05, Available at SSRN: https://ssrn.com/abstract=4168333 or http://dx.doi.org/10.2139/ssrn.4168333

Rene M. Stulz (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

HOME PAGE: http://www.cob.ohio-state.edu/fin/faculty/stulz

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
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1000 Brussels
Belgium

Alvaro G. Taboada

Mississippi State University ( email )

310-H McCool Hall
PO Box 9580
Mississippi State, MS 39762
United States
662-325-6716 (Phone)
662-325-1977 (Fax)

Mathijs A. Van Dijk

Erasmus University Rotterdam (EUR) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

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