The Determinants of Banks' Liquidity Buffers in Central America
December 21, 2012
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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.
Subject: Asset and liability management, Banking, Credit, Financial institutions, Financial regulation and supervision, Financial safety nets, Foreign banks, Liquidity, Liquidity management, Liquidity requirements, Money
Keywords: bank, bank characteristic, bank liquidity, bank ownership, CAPDR bank, Central America, credit, customer deposit, deposit, deposit dollarization, dollarization, Eastern Europe, excess liquidity, foreign banks, Global, liquid asset, Liquidity, liquidity holding, Liquidity management, Liquidity requirements, South America, WP
Pages:
43
Volume:
2012
DOI:
Issue:
301
Series:
Working Paper No. 2012/301
Stock No:
WPIEA2012301
ISBN:
9781616356675
ISSN:
1018-5941
