ABSTRACT
This paper examines the relation between bank size and liquidity creation. Using panel data on US banks between 2001:Q1 and 2016:Q4, we find that the relation is negative before and during the financial crisis of 2007–2009, but positive after the crisis. We also find that size is positively related to asset-side liquidity creation, but negatively related to liability-side liquidity creation. Overall, our results suggest that the relation between bank size and liquidity creation is influenced by the aggregate economic environment, and shed light on why previous researchers have found mixed results.
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Notes
3 Gross total assets is the sum of total assets, the allowance for loan and lease losses, and the allocated transfer risk reserve (Berger and Bouwman Citation2009)