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Wholesale funding and liquidity Creation

Kladakis, George; Chen, Lei; Bellos, Sotirios K.

Authors

George Kladakis

Lei Chen

Sotirios K. Bellos



Abstract

We examine the relationship between wholesale funding and liquidity creation using a sample of 825 banks in 84 countries during the post-crisis period of 2010–2020. We find that asset-side liquidity creation is consistently negatively associated with short-term wholesale funding, but not with long-term wholesale funding. Our results suggest that the relationship of short-term wholesale funding with asset-side liquidity creation is significantly driven by a negative relationship with illiquid lending. Moreover, our results show that the negative relationship between wholesale funding and liquidity creation is positively moderated by asset risk, suggesting the presence of moral hazard incentives. Our results are robust to a series of tests and have important implications for bank liquidity regulation.

Journal Article Type Article
Acceptance Date Jun 9, 2022
Online Publication Date Jul 5, 2022
Publication Date 2022-11
Deposit Date Jun 15, 2022
Publicly Available Date Jul 11, 2022
Journal Review of Quantitative Finance and Accounting
Print ISSN 0924-865X
Electronic ISSN 1573-7179
Publisher Springer
Peer Reviewed Peer Reviewed
Volume 59
Pages 1501-1524
DOI https://doi.org/10.1007/s11156-022-01081-9
Public URL http://researchrepository.napier.ac.uk/Output/2878984

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