Bank capital and liquidity creation in Sub-Saharan Africa: the role of quality institutions

Isaac Bawuah
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Abstract

Purpose

This study investigates the relationship between bank capital and liquidity creation and further examines the effect that institutional quality has on this relationship in Sub-Saharan Africa (SSA).

Design/methodology/approach

The data comprise 41 universal banks in nine SSA countries from 2010 to 2022. The study employs the two-step system generalized methods of moments and further uses alternative estimators such as the fixed-effect and two-stage least squares methods.

Findings

The empirical results show that bank capital has a direct positive and significant effect on liquidity creation. In addition, the positive effect of bank capital on liquidity creation is enhanced, particularly in a strong institutional environment. The results imply that nonconstraining capital regulatory policies bolster bank solvency, improve risk-absorption capacity and increase liquidity creation.

Practical implications

This study has several policy implications. First, it provides empirical evidence on the position of banks in SSA on the financial fragility and risk-absorption hypothesis of bank capital and liquidity creation debates. This study shows that the effect of bank capital on liquidity creation in SSA countries is positive and supports the risk-absorption hypothesis. Second, this study highlights that a country's quality institutions can complement bank capital to increase liquidity creation. In addition, this study highlights that nonconstraining capital regulatory policies will bolster bank solvency, improve risk-absorption capacity and increase liquidity creation.

Originality/value

The novelty of this study is that it introduces the country's quality institutional environment into bank capital and liquidity creation links for the first time in SSA.

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撒哈拉以南非洲的银行资本和流动性创造:优质机构的作用
目的本研究调查了银行资本与流动性创造之间的关系,并进一步研究了撒哈拉以南非洲(SSA)的机构质量对这种关系的影响。研究采用了两步系统广义矩方法,并进一步使用了固定效应法和两阶段最小二乘法等替代估计方法。研究结果实证结果表明,银行资本对流动性创造有直接的正向显著影响。此外,银行资本对流动性创造的积极影响会增强,尤其是在强有力的制度环境中。这些结果表明,非约束性资本监管政策能够增强银行的偿付能力,提高风险吸收能力,增加流动性的创造。首先,它提供了关于撒哈拉以南非洲地区银行在银行资本和流动性创造辩论的金融脆弱性和风险吸收假说中的地位的经验证据。本研究表明,在撒哈拉以南非洲国家,银行资本对流动性创造的影响是积极的,并支持风险吸收假说。其次,本研究强调,一个国家的优质机构可以补充银行资本,从而增加流动性的创造。此外,本研究还强调,非约束性的资本监管政策将增强银行的偿付能力,提高风险吸收能力,增加流动性的创造。
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来源期刊
CiteScore
3.20
自引率
7.70%
发文量
41
期刊介绍: African Journal of Economic and Management Studies (AJEMS) advances both theoretical and empirical research, informs policies and practices, and improves understanding of how economic and business decisions shape the lives of Africans. AJEMS is a multidisciplinary journal and welcomes papers from all the major disciplines in economics, business and management studies.
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