The Determinants of Banks' Liquidity Buffers in Central America

 
Author/Editor: Delechat, Corinne ; Henao Arbelaez, Camila ; Muthoora, Priscilla ; Vtyurina, Svetlana
 
Publication Date: December 21, 2012
 
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
 
Summary: Banks’ liquidity holdings are comfortably above legal or prudential requirements in most Central American countries. While good for financial stability, high systemic liquidity may nonetheless hinder monetary policy transmission and financial markets development. Using a panel of about 100 commercial banks from the region, we find that the demand for precautionary liquidity buffers is associated with measures of bank size, profitability, capitalization, and financial development. Deposit dollarization is also associated with higher liquidity, reinforcing the monetary policy and market development challenges in highly dollarized economies. Improvements in supervision and measures to promote dedollarization, including developing local currency capital markets, would help enhance financial systems’ efficiency and promote intermediation in the region.
 
Series: Working Paper No. 12/301
Subject(s): Banking systems | Central America | Liquidity | Commercial banks | Cross country analysis

 
English
Publication Date: December 21, 2012
ISBN/ISSN: 9781616356675/2227-8885 Format: Paper
Stock No: WPIEA2012301 Pages: 43
Price:
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