Why have liquid asset holdings of banks evolved so differently from those of non-financial firms?
Bank liquid asset holdings vary significantly across banks and through time. The evolution of bank liquid asset holdings is almost the mirror image of the evolution of non-financial firms’ liquid asset holdings. 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. Though we find strong support for the investment motive, this motive cannot explain why liquid asset holdings are much higher for large banks after the Global Financial Crisis than before, while regulatory changes can.
Meeting ID: 989 3458 6108
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