The Determinants of Banks' Liquidity Buffers in Central America

By Corinne C Delechat, Camila Henao Arbelaez, Priscilla S Muthoora, Svetlana Vtyurina

December 21, 2012

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Format: Chicago

Corinne C Delechat, Camila Henao Arbelaez, Priscilla S Muthoora, and Svetlana Vtyurina. The Determinants of Banks' Liquidity Buffers in Central America, (USA: International Monetary Fund, 2012) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Banks’ liquidity holdings are comfortably above legal or prudential requirements in most Central American countries. While good for financial stability, high systemic liquidity may nonetheless hinder monetary policy transmission and financial markets development. Using a panel of about 100 commercial banks from the region, we find that the demand for precautionary liquidity buffers is associated with measures of bank size, profitability, capitalization, and financial development. Deposit dollarization is also associated with higher liquidity, reinforcing the monetary policy and market development challenges in highly dollarized economies. Improvements in supervision and measures to promote dedollarization, including developing local currency capital markets, would help enhance financial systems’ efficiency and promote intermediation in the region.

Subject: Asset and liability management, Banking, Credit, Financial institutions, Financial regulation and supervision, Financial safety nets, Foreign banks, Liquidity, Liquidity management, Liquidity requirements, Money

Keywords: Bank, Bank characteristic, Bank liquidity, Bank ownership, CAPDR bank, Central America, Credit, Customer deposit, Deposit, Deposit dollarization, Dollarization, Eastern Europe, Excess liquidity, Foreign banks, Global, Liquid asset, Liquidity, Liquidity holding, Liquidity management, Liquidity requirements, South America, WP

Publication Details

Pages:

43
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2012/301
Stock No:

WPIEA2012301
ISBN:

9781616356675
ISSN:

1018-5941

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