Why Are Bank Holdings of Liquid Assets So High? / René M. Stulz, Alvaro G. Taboada, Mathijs A. van Dijk.

Format:

Book

Author/Creator:

Stulz, René M.

Contributor:

National Bureau of Economic Research.

Taboada, Alvaro G.

van Dijk, Mathijs A.

Series:

Working Paper Series (National Bureau of Economic Research) no. w30340.

NBER working paper series no. w30340

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2022.

Summary:

Aggregate bank liquid asset holdings (reserves and liquid securities) increased from 13% to 33% of assets from before the Global Financial Crisis (GFC) to 2020. If banks allocate their balance sheet by equalizing the marginal risk-adjusted expected return across asset classes, they hold more liquid assets when they have less advantageous lending opportunities. We show that, indeed, holdings of liquid assets are negatively related to lending opportunities. Our findings indicate that bank liquid asset holdings grew since the GFC because of weak lending opportunities, though regulatory changes help explain the higher liquid asset holdings of the largest banks before COVID.

Notes:

Print version record

August 2022.