The effect of liquidity on lending growth - Evidence from USA banking industry

Abstract

This paper examines the effect of different definitions of liquidity on lending growth Lending includes credit and loan and discusses the impact among different situations We consider the large banks during the financial crisis and its interaction effect with capital ratio We use fixed effect regression and two stage least squares instrumental variable method (2SLS) to discuss their effects This paper employed three liquidity ratios: (1) liquid assets to total assets (LIQ) (2) deposits to total assets (DTA) (3) deposits to loan ratio (DTL) We used quarterly data of USA banking industry from 2001 to 2017 to test these relationships In the common situation for the large banks and during the financial crisis increased LIQ will lead to an increase in lending growth But when the LIQ increases with the capital ratio lending growth will decrease But for the result of 2SLS is positive for loan growth We find that when DTA increases the lending growth will increase in the common situation but lending growth will decrease during the financial crisis and with the capital ratio There is no direct effect for the large banks For the increasing of the DTL in the common situation for the large banks lending growth will increase The relation between the DTL and the lending growth are negative during the financial crisis and with the capital ratio

Date of Award	2018 Jun 28
Original language	English
Supervisor	Tse-Shih Wang (Supervisor)