Impact of Government Borrowing on Bank Liquidity Crisis: <i>An Econometric Analysis</i>

Raad Mozib Lalon

doi:doi:10.11648/j.ijefm.20150305.23

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Impact of Government Borrowing on Bank Liquidity Crisis: An Econometric Analysis

Raad Mozib Lalon

Published in International Journal of Economics, Finance and Management Sciences (Volume 3, Issue 5)

Received: 27 July 2015 Accepted: 26 August 2015 Published: 16 October 2015

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Abstract

This paper attempts to reveal the ultimate determinants affecting the recent liquidity position of commercial banks in Bangladesh. The whole scenario is presented through focusing on the various elements affecting the liquidity position in commercial banks over a period of time. This liquidity position of commercial banks is affected by many macro economic variables such as savings and investment, distribution of credit, interest rates and economic growth. The models developed in this paper divulge that some of the determinants such as share price Index, overall investment position of commercial banks, M2 Currency, overall classified loans of commercial banks and outstanding amount of L/C significantly affect the liquidity position of commercial banks in Bangladesh. Although net government borrowing from banking sector also affects the liquidity position of commercial banks through creating crowding-out effect for private investors, the models mentioned in this study reveal that net government borrowing is not individually significant in explaining liquidity position of commercial banks rather this net government borrowing along with other variables is jointly significant in explaining liquidity position. As a corollary, this paper examines whether the so-called Government borrowing in recent years may cause the liquidity crisis in commercial banks of Bangladesh.

Published in	International Journal of Economics, Finance and Management Sciences (Volume 3, Issue 5)
DOI	10.11648/j.ijefm.20150305.23
Page(s)	526-534
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2024. Published by Science Publishing Group

Keywords

Liquidity Position (LP), Investment (INV), Classified Loan (CL), Outstanding Amount of Letter of Credit (OULC), Net Government Borrowing (NGB), Cash Reserve Ratio (CRR), M₂, Rescheduling, Loan Against Trust Receipt (LTR)

References

[1]	BIS (2009). International framework for liquidity risk measurement, standards and monitoring. Basel: Bank for International Settlements.
[2]	B. Ozdincer, C. Ozyildirim, “Determining the Factors of Bank Performance with a Focus on Risk and Technical Efficiency,” in Proceedings from 2nd WSEAS International Conference on Management, Marketing and Finances (MMF' 08), Harvard, 2008, pp. 31-39.
[3]	BESSIS, J. (2009). Risk Management in Banking. Chichester: John Wiley & Sons.
[4]	Heller, D.; Lengwiller, Y. (2003) Payment obligations, reserves requirements, and the demand for central bank balance, Journal of Monetary Economics, 50, 419-432.
[5]	International Monetary Fund (2010) Cape Verde: Article IV Consultation and Request for a 15- Month Policy Support Instrument—Staff Report, December 2010 IMF Country Report 10/349. (http://www.imf.org/external/pubs/ft/scr/2010/cr10349.pdf).
[6]	M. K. Brunnermeier, “Deciphering the Liquidity and Credit Crunch 2007-2008,” Journal of Economic Perspectives, vol. 23, no. 1, pp. 77- 100, 2009.
[7]	M. Drehmann, K. Nikolau, “Funding Liquidity Risk. Definition and Measurement. ” ECB Working Paper, no. 1024, 2009.
[8]	MOORE, W. (2010). How do financial crises affect commercial bank liquidity? Evidence from Latin America and the Caribbean. MPRA Paper 2010-21473. Munich: Munich Personal RePEc Archive.
[9]	O. Aspachs, E. Nier, M. Tiesset, “Liquidity, Banking Regulation and the Macroeconomy. Evidence on bank liquidity holdings from a panel of UK-resident banks.,” Bank of England Working Paper, 2005.
[10]	Principles for Sound Liquidity Risk Management and Supervision. Bank for International Settlements, 2008.
[11]	PRAET, P. – HERZBERG, V. (2008). Market liquidity and banking liquidity: linkages, vulnerabilities and the role of disclosure. In Banque de France Financial stability Review. France: Banque de France, pp. 95-109.
[12]	RAUCH, C. – STEFFEN, S. – HACKETHAL, A. – TYRELL, M. (2010). Determinants of Bank Liquidity Creation. Available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1343595
[13]	RYCHTÁRIK, Š. (2009). Liquidity Scenario Analysis in the Luxembourg Banking Sector. BCDL Working Paper 2009-41. Luxembourg: Banque Centrale du Luxembourg.
[14]	Saxegaard, Magnus (2006) Excess Liquidity and the Effectiveness of Monetary Policy: Evidence from Sub-Saharan Africa, International Monetary Fund, Working Paper 06/115.

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Raad Mozib Lalon. (2015). Impact of Government Borrowing on Bank Liquidity Crisis: An Econometric Analysis. International Journal of Economics, Finance and Management Sciences, 3(5), 526-534. https://doi.org/10.11648/j.ijefm.20150305.23

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ACS Style

Raad Mozib Lalon. Impact of Government Borrowing on Bank Liquidity Crisis: An Econometric Analysis. Int. J. Econ. Finance Manag. Sci. 2015, 3(5), 526-534. doi: 10.11648/j.ijefm.20150305.23

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AMA Style

Raad Mozib Lalon. Impact of Government Borrowing on Bank Liquidity Crisis: An Econometric Analysis. Int J Econ Finance Manag Sci. 2015;3(5):526-534. doi: 10.11648/j.ijefm.20150305.23

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@article{10.11648/j.ijefm.20150305.23,
  author = {Raad Mozib Lalon},
  title = {Impact of Government Borrowing on Bank Liquidity Crisis: An Econometric Analysis},
  journal = {International Journal of Economics, Finance and Management Sciences},
  volume = {3},
  number = {5},
  pages = {526-534},
  doi = {10.11648/j.ijefm.20150305.23},
  url = {https://doi.org/10.11648/j.ijefm.20150305.23},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijefm.20150305.23},
  abstract = {This paper attempts to reveal the ultimate determinants affecting the recent liquidity position of commercial banks in Bangladesh. The whole scenario is presented through focusing on the various elements affecting the liquidity position in commercial banks over a period of time. This liquidity position of commercial banks is affected by many macro economic variables such as savings and investment, distribution of credit, interest rates and economic growth. The models developed in this paper divulge that some of the determinants such as share price Index, overall investment position of commercial banks, M2 Currency, overall classified loans of commercial banks and outstanding amount of L/C significantly affect the liquidity position of commercial banks in Bangladesh. Although net government borrowing from banking sector also affects the liquidity position of commercial banks through creating crowding-out effect for private investors, the models mentioned in this study reveal that net government borrowing is not individually significant in explaining liquidity position of commercial banks rather this net government borrowing along with other variables is jointly significant in explaining liquidity position. As a corollary, this paper examines whether the so-called Government borrowing in recent years may cause the liquidity crisis in commercial banks of Bangladesh.},
 year = {2015}
}

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TY  - JOUR
T1  - Impact of Government Borrowing on Bank Liquidity Crisis: An Econometric Analysis
AU  - Raad Mozib Lalon
Y1  - 2015/10/16
PY  - 2015
N1  - https://doi.org/10.11648/j.ijefm.20150305.23
DO  - 10.11648/j.ijefm.20150305.23
T2  - International Journal of Economics, Finance and Management Sciences
JF  - International Journal of Economics, Finance and Management Sciences
JO  - International Journal of Economics, Finance and Management Sciences
SP  - 526
EP  - 534
PB  - Science Publishing Group
SN  - 2326-9561
UR  - https://doi.org/10.11648/j.ijefm.20150305.23
AB  - This paper attempts to reveal the ultimate determinants affecting the recent liquidity position of commercial banks in Bangladesh. The whole scenario is presented through focusing on the various elements affecting the liquidity position in commercial banks over a period of time. This liquidity position of commercial banks is affected by many macro economic variables such as savings and investment, distribution of credit, interest rates and economic growth. The models developed in this paper divulge that some of the determinants such as share price Index, overall investment position of commercial banks, M2 Currency, overall classified loans of commercial banks and outstanding amount of L/C significantly affect the liquidity position of commercial banks in Bangladesh. Although net government borrowing from banking sector also affects the liquidity position of commercial banks through creating crowding-out effect for private investors, the models mentioned in this study reveal that net government borrowing is not individually significant in explaining liquidity position of commercial banks rather this net government borrowing along with other variables is jointly significant in explaining liquidity position. As a corollary, this paper examines whether the so-called Government borrowing in recent years may cause the liquidity crisis in commercial banks of Bangladesh.
VL  - 3
IS  - 5
ER  -

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Author Information

Raad Mozib Lalon

Department of Banking and Insurance, University of Dhaka, Dhaka, Bangladesh

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APA Style

Raad Mozib Lalon. (2015). Impact of Government Borrowing on Bank Liquidity Crisis: An Econometric Analysis. International Journal of Economics, Finance and Management Sciences, 3(5), 526-534. https://doi.org/10.11648/j.ijefm.20150305.23

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ACS Style

Raad Mozib Lalon. Impact of Government Borrowing on Bank Liquidity Crisis: An Econometric Analysis. Int. J. Econ. Finance Manag. Sci. 2015, 3(5), 526-534. doi: 10.11648/j.ijefm.20150305.23

Copy | Download

AMA Style

Raad Mozib Lalon. Impact of Government Borrowing on Bank Liquidity Crisis: An Econometric Analysis. Int J Econ Finance Manag Sci. 2015;3(5):526-534. doi: 10.11648/j.ijefm.20150305.23

Copy | Download

@article{10.11648/j.ijefm.20150305.23,
  author = {Raad Mozib Lalon},
  title = {Impact of Government Borrowing on Bank Liquidity Crisis: An Econometric Analysis},
  journal = {International Journal of Economics, Finance and Management Sciences},
  volume = {3},
  number = {5},
  pages = {526-534},
  doi = {10.11648/j.ijefm.20150305.23},
  url = {https://doi.org/10.11648/j.ijefm.20150305.23},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijefm.20150305.23},
  abstract = {This paper attempts to reveal the ultimate determinants affecting the recent liquidity position of commercial banks in Bangladesh. The whole scenario is presented through focusing on the various elements affecting the liquidity position in commercial banks over a period of time. This liquidity position of commercial banks is affected by many macro economic variables such as savings and investment, distribution of credit, interest rates and economic growth. The models developed in this paper divulge that some of the determinants such as share price Index, overall investment position of commercial banks, M2 Currency, overall classified loans of commercial banks and outstanding amount of L/C significantly affect the liquidity position of commercial banks in Bangladesh. Although net government borrowing from banking sector also affects the liquidity position of commercial banks through creating crowding-out effect for private investors, the models mentioned in this study reveal that net government borrowing is not individually significant in explaining liquidity position of commercial banks rather this net government borrowing along with other variables is jointly significant in explaining liquidity position. As a corollary, this paper examines whether the so-called Government borrowing in recent years may cause the liquidity crisis in commercial banks of Bangladesh.},
 year = {2015}
}

Copy | Download

TY  - JOUR
T1  - Impact of Government Borrowing on Bank Liquidity Crisis: An Econometric Analysis
AU  - Raad Mozib Lalon
Y1  - 2015/10/16
PY  - 2015
N1  - https://doi.org/10.11648/j.ijefm.20150305.23
DO  - 10.11648/j.ijefm.20150305.23
T2  - International Journal of Economics, Finance and Management Sciences
JF  - International Journal of Economics, Finance and Management Sciences
JO  - International Journal of Economics, Finance and Management Sciences
SP  - 526
EP  - 534
PB  - Science Publishing Group
SN  - 2326-9561
UR  - https://doi.org/10.11648/j.ijefm.20150305.23
AB  - This paper attempts to reveal the ultimate determinants affecting the recent liquidity position of commercial banks in Bangladesh. The whole scenario is presented through focusing on the various elements affecting the liquidity position in commercial banks over a period of time. This liquidity position of commercial banks is affected by many macro economic variables such as savings and investment, distribution of credit, interest rates and economic growth. The models developed in this paper divulge that some of the determinants such as share price Index, overall investment position of commercial banks, M2 Currency, overall classified loans of commercial banks and outstanding amount of L/C significantly affect the liquidity position of commercial banks in Bangladesh. Although net government borrowing from banking sector also affects the liquidity position of commercial banks through creating crowding-out effect for private investors, the models mentioned in this study reveal that net government borrowing is not individually significant in explaining liquidity position of commercial banks rather this net government borrowing along with other variables is jointly significant in explaining liquidity position. As a corollary, this paper examines whether the so-called Government borrowing in recent years may cause the liquidity crisis in commercial banks of Bangladesh.
VL  - 3
IS  - 5
ER  -

Copy | Download