Bank Capital And Liquidity Creation: The Case Of Jordanian Commercial Banks

Abstract

This study examines the effect of bank capital on liquidity creation for the Jordanian commercial banks listed on the Amman Stock Exchange, 2008-2017. The data consist of balanced panel data of 13 commercial banks, amounting to 130 annual observations over the duration of the study. Three proxies of liquidity creation are used: The Berger and Bouwman (2009) cat nonfat measure, the inverse net stable funding ratio, and the Gross loan ratio. The Vector Auto-Regression (VAR) model, Granger Causality and Co-integration tests are used to test the hypotheses of the research. The findings reveal a statistically significant negative long-run relationship between bank capital and liquidity creation measured by Berger and Bouwman (2009) proxy for Jordanian commercial banks over the duration of the study. However, no short-run or causal relationship is detected.