Liquidity Management, Fire Sale and Liquidity Crises in Banking: The Role of Leverage

Using data from the Lipper TASS hedge fund database over the period 1994–2012, we examine the role of liquidity risk in explaining the relation between asset size and hedge fund performance. While a significant negative size-performance relation exists for all hedge funds, once we stratify our sample by liquidity risk, we find that such a relationship only exists among funds with the highest liquidity risk. Liquidity risk is found to be another important source of diseconomies of scale in the hedge fund industry. Evidently, for high liquidity risk funds, large funds are less able to recover from the relatively more significant losses incurred during market-wide liquidity crises, resulting in lower performance for large funds relative to small funds.

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Critical Analysis of the Role of the Reserve Bank of India in Managing Liquidity in the Interbank Market amidst Financial Stress

International Journal of Risk and Contingency Management ◽

10.4018/ijrcm.2016070103 ◽

2016 ◽

Vol 5 (3) ◽

pp. 33-45

Author(s):

Rituparna Das

Keyword(s):

Critical Analysis ◽

Banking Industry ◽

Economic Downturn ◽

Interbank Market ◽

Liquidity Management ◽

Management Procedure ◽

Reserve Bank ◽

Loan Defaults ◽

Reserve Bank Of India

During the period 2011-12 of economic downturn characterized typically by economy wide loan defaults many banks in India are reported to have posted adequate levels of capital but experienced difficulties due to unsound liquidity management. In an attempt to examine the ease of liquidity management procedure of the Indian banking industry, this paper critically examines whether the central bank of the country facilitates liquidity management of the banks during the stress periods. The finding is that it does not.

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Liquidity Provision and Co-insurance in Bank Syndicates

Finance and Economics Discussion Series ◽

10.17016/feds.2021.060 ◽

2021 ◽

Vol 2021 (060) ◽

pp. 1-59

Author(s):

Kevin F. Kiernan ◽

Vladimir Yankov ◽

Filip Zikes ◽

◽

Keyword(s):

Banking System ◽

Assortative Matching ◽

Corporate Sector ◽

Liquidity Management ◽

Liquidity Provision ◽

Contractual Arrangements ◽

Credit Lines ◽

Credit Line ◽

Liquidity Regulation

We study the capacity of the banking system to provide liquidity to the corporate sector in times of stress and how changes in this capacity affect corporate liquidity management. We show that the contractual arrangements among banks in loan syndicates co-insure liquidity risks of credit line drawdowns and generate a network of interbank exposures. We develop a simple model and simulate the liquidity and insurance capacity of the banking network. We find that the liquidity capacity of large banks has significantly increased following the introduction of liquidity regulation, and that the liquidity co-insurance function in loan syndicates is economically important. We also find that borrowers with higher reliance on credit lines in their liquidity management have become more likely to obtain credit lines from syndicates with higher liquidity. The assortative matching on liquidity characteristics has strengthened the role of banks as liquidity providers to the corporate sector.

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The Role of Liquidity Management in Profitability: Case Study of Five Selected Commercial Banks of Iraq Stock Exchange over the Period (2006 – 2016)

Academic Journal of Nawroz University ◽

10.25007/ajnu.v8n4a470 ◽

2019 ◽

Vol 8 (4) ◽

pp. 267

Author(s):

Shivan H. Ali ◽

Shivan A. Jameel

Keyword(s):

Commercial Banks ◽

Stock Exchange ◽

Random Effect ◽

Panel Cointegration ◽

Return On Assets ◽

Liquidity Management ◽

Return On Equity ◽

Panel Cointegration Test ◽

Negative Role

The purpose of this paper is to examine the role of liquidity management in the profitability of commercial banks listed on the Iraq Stock Exchange during the period 2006-2016. Data were collected from the annual financial statements of the banks. In order to analyze data, the current ratio (CR) was used as a proxy for liquidity as an independent variable while the return on assets (ROA) and the return on equity (ROE) were used as proxies for banks' profitability as dependent variables. The results of the study indicate that all of the variables under study are stationary at first differenced by utilizing Panel Unit Root Tests (Levin-Lin Chu and Hadri LM Methods). The outcomes of panel cointegration test showed that there is no long-term relationship among variables. In addition, the paper revealed that, in short term, the liquidity of banks plays an insignificant negative role in banks’ profitability for both ROA and ROE by employing pooled regression model, Fixed Effect and Random Effect models. Therefore, this study recommended that banks' managers should take the advantage of investing their liquidity in various projects to obtain more profitability and then help governments to decrease their unemployment and recession in economy.

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Model of Islamic Monetary Operation for Liquidity Management in Islamic Banking: Case of Indonesia 2000-2009

Gadjah Mada International Journal of Business ◽

10.22146/gamaijb.5528 ◽

2009 ◽

Vol 11 (2) ◽

pp. 149 ◽

Cited By ~ 2

Author(s):

Rifki Ismal

Keyword(s):

Central Bank ◽

Banking Industry ◽

Islamic Banking ◽

Liquidity Management ◽

Conventional Models ◽

Islamic Investment ◽

The Ideal

The paper attempts to construct the model of islamic monetary operation for liquidity management in islamic banking. Particularly, the model investigates variables that determine the role of the central bank in managing liquidity. Firstly, it explores the related conventional models and chooses one to find general variables involved in monetary operations for managing liquidity. Secondly, it formulates the islamic model after considering the islamic monetary operation principles, characteristics of both islamic monetary instruments and Indonesian islamic banking industry. Specifically, it models Bank Indonesia’s islamic monetary instrument called Bank Indonesia Sharia Certificate (SBIS). Thirdly, the model points out that the volume of SBIS is influenced by reserves requirement, currency in circulation, and prior auctions of SBIS. It means that the application of islamic OMO is not significantly different from monetary instrument in conventional OMO. Therefore, the paper suggests the issuance of islamic investment monetary instruments to implement the ideal islamic monetary instrument and OMO.

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Islamic banks-Sukuk markets relationships and economic development

Journal of Islamic Accounting and Business Research ◽

10.1108/jiabr-07-2012-0054 ◽

2014 ◽

Vol 5 (1) ◽

pp. 47-60 ◽

Cited By ~ 4

Author(s):

Daoud Ben Jedidia Khoutem

Keyword(s):

Economic Development ◽

Important Implication ◽

Islamic Finance ◽

Islamic Banks ◽

Liquidity Management ◽

Content Type ◽

Long Run ◽

Disclosure Laws ◽

Investment Process

Purpose – The purpose of this paper is to examine the opportunities of Islamic finance in spurring economic development in Tunisia after the revolution of 2011. Precisely, this paper seeks to explore whether the Islamic banks-Sukuk markets relationships are more conducive of economic growth. Design/methodology/approach – This work reviews the role of Islamic finance in economic development, examines the current dominance of Islamic banks on the saving-investment process and compares it with a situation characterized by a more important implication of banks in the Sukuk markets both as issuers and buyers. Findings – This paper finds that the “marketable Islamic intermediation” provides easily more funds to finance the economic development and solve the problems of poverty and unemployment. It also reveals that Islamic intermediation can be improved by a more important implication of banks in the Sukuk markets. This permits to overcome many problems related to saving mobilization, bank liquidity management, risk taking and long-run investment. Social implications – The author's recommendations related to the economic policy suggest strict rules to establish accountability, disclosure laws and transparency in Tunisia. Originality/value – This paper is a first attempt to study the role of the relationships between Islamic banks and Sukuk markets in the economic development process. It stresses the importance of these relationships to better meet the requirements of development financing in Tunisia.

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The Role of Sharia Monetary Instrument in Liquidity Management and Performance Improvement of Islamic Banking Financial in Indonesia

AL- ADALAH ◽

10.24042/adalah.v15i2.3200 ◽

2019 ◽

Vol 15 (2) ◽

pp. 389

Author(s):

Mohd Rizal Muwazir ◽

Deky Anwar ◽

Ab Mumin Ab Ghani

Keyword(s):

Financial Performance ◽

Performance Improvement ◽

Vector Autoregression ◽

Islamic Banking ◽

Islamic Banks ◽

Liquidity Management ◽

Testing Hypotheses ◽

Augmented Dickey Fuller ◽

And Performance

This study analyzes the variables of liquidity and financial performance of Islamic banks that affect the number of transactions in Islamic monetary instruments. The aim is to find out which instruments is better in supporting liquidity management and financial performance of Islamic banks in Indonesia. This study uses the CAR and FDR variables as proxies of liquidity and ROA as a proxy for the financial performance of Islamic banks. While the proxy for sharia monetary instruments in Indonesia is the variable SBIS and SBPUS. This study uses monthly Islamic banking reports in Indonesia for the period January 2015 to September 2017. Data is processed and analyzed by Augmented Dickey-Fuller (ADF) Stationery Test as a way of testing stationary data and then testing hypotheses using Vector Autoregression (VAR). This study found that the the most contributing variable to the changes in transaction volume in Islamic monetary instruments was the variable liquidity, namely CAR and FDR. In Addition, SBIS sharia monetary instruments are better used by Islamic banking in Indonesia compared to SBPUS.

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