Liquidity Hoarding Behavior During the Financial Crisis. Empirical Evidence from the European Banking System

Mardi | 2013-10-01
salle des thèses

Emilia COROVEI – Simona MUTU

Generally, the incentives of banks to stock liquid assets are driven by two reasons: the precautionary motive and the speculative motive. Using bank-specific balance sheet data this paper provides empirical evidence of the main drivers of liquidity hoarding behavior in the European banking system during 2004-2011. We propose a time-varying approach to distinguish between liquidity hoarding and non-hoarding banks. The methodology is based on the First Difference GMM estimator of Arellano and Bond (1991) which accounts for persistency of the dependent variable, endogeneity, heteroskedasticity and autocorrelation. The bank specific data used in our analysis reveals the precautionary motives of European banks to hoard liquid assets. Funding constraints, structural balance sheet risk, investment portfolio risk, specialization and profitability are key determinants of the hoarding behavior. The findings are relevant both for the individual risk management of banks as well as for the financial supervisory authorities in designing an efficient macroprudential supervision framework.