1. Liquidity creation
Liquidity creation is a vital service that banks provide to the economy. Banks create liquidity by
using relatively liquid liabilities, such as demand deposits, to fund relatively illiquid assets,
such as business loans.
2. Banks’ raison d’être is liquidity creation
3. When central banks raise interest rates, liquid deposits flow out of the banking system
4. To what extend drives the structure of the banking sector, i.e. the regional competition, the
variation of banks’ responses to monetary policy shocks?
5. Panel data (focuses on multiple individuals at multiple time intervals)
6. higher individual pricing power in the market lowers banks’ liquidity creation
7. Monopolistic firms undersupply the market when utilizing their high pricing power in the bank
competition–liquidity creation nexus. The implication for a monopolistic banking market is that
banks can price long-term deposits lowly and short-term loans highly, resulting in high margins.
8. an unexpected effective interest rate shock by 1 percentage point implies an average increase in
total liquidity creation by
0.025percentagepoints.Anunexpectedincreaseininterestratescausespresentvalue
lossesintheshortrun,butalsoraisesabank’sprofitopportunitiesand,therefore,perse leads to higher
liquidity creation activities in financial institutions