The paper explores the impact of uncertainty on bank liquidity hoarding, particularly providing new insights on the nature of the impact by bank-level heterogeneity. We consider the cross-sectional dispersion of shocks to key bank variables to estimate uncertainty in the banking sector and include all banking items to construct a comprehensive measure of bank liquidity hoarding. Using a sample of Vietnamese banks during 2007–2019, we document that banks tend to increase total liquidity hoarding in response to higher uncertainty; this pattern is still valid for on- and off-balance sheet liquidity hoarding. Further analysis with bank-level heterogeneity indicates that the impact of banking uncertainty on liquidity hoarding is significantly stronger for weaker banks, i. e., banks that are smaller, more poorly capitalized, and riskier. In testing the “search for yield” hypothesis to explain the linkage between uncertainty and bank liquidity hoarding, we do not find it to be the case. Our findings remain extremely robust after multiple robustness tests.
Adesina, K. S. (2019). Basel III liquidity rules: The implications for bank lending growth in Africa. Economic Systems, 43(2). https://doi.org/10.1016/j.ecosys.2018.10.002
Affinito, M., Albareto, G., & Santioni, R. (2019). Purchases of sovereign debt securities by banks during the crisis: The role of balance sheet conditions. Journal of Banking and Finance, 105575. https://doi.org/10.1016/j.jbankfin.2019.06.007
Agénor, P. R., & Aynaoui, K. El. (2010). Excess liquidity, bank pricing rules, and monetary policy. Journal of Banking and Finance, 34(5), 923–933. https://doi.org/10.1016/j.jbankfin.2009.10.003
Al-Thaqeb, S. A., & Algharabali, B. G. (2019). Economic policy uncertainty: A literature review. Journal of Economic Asymmetries, 20,e00133. https://doi.org/10.1016/j.jeca.2019.e00133
Allen, F., & Gale, D. (2004). Competition and financial stability. Journal of Money, Credit, and Banking, 36(3b), 453–480. https://doi.org/10.1353/mcb.2004.0038
Arellano, M., & Bover, O. (1995). Another look at the instrumental variable estimation of error-components models. Journal of Econometrics, 68(1), 29–51. https://doi.org/10.1016/0304-4076(94)01642-D
Ashraf, B. N. (2020). Policy uncertainty and bank liquidity hoarding: International evidence. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3574193
Ashraf, B. N., & Shen, Y. (2019). Economic policy uncertainty and banks’ loan pricing. Journal of Financial Stability, 44(C). https://doi.org/10.1016/j.jfs.2019.100695
Aspachs, O., Nier, E. W., & Tiesset, M. (2011). Liquidity, Banking Regulation and the Macroeconomy. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.673883
Baker, S. R., Bloom, N., & Davis, S. J. (2016). Measuring economic policy uncertainty. Quarterly Journal of Economics, 131(4), 1593–1636. https://doi.org/10.1093/qje/qjw024
Beck, P. J., & Narayanamoorthy, G. S. (2012). Did the SEC impact banks’ loan loss reserve policies and their informativeness? Journal of Accounting and Economics, 56(2–3), 42–65. https://doi.org/10.1016/j.jacceco.2013.06.002
Berger, A. N., Boubakri, N., Guedhami, O., & Li, X. (2019). Liquidity creation performance and financial stability consequences of Islamic banking: Evidence from a multinational study. Journal of Financial Stability, 44(C). https://doi.org/10.1016/j.jfs.2019.100692
Berger, A. N., & Bouwman, C. H. S. (2009). Bank liquidity creation. Review of Financial Studies, 22(9), 3779–3837. https://doi.org/10.1093/rfs/hhn104
Berger, A. N., Guedhami, O., Kim, H. H., & Li, X. (2020). Economic policy uncertainty and bank liquidity hoarding. Journal of Financial Intermediation, 100893. https://doi.org/10.1016/j.jfi.2020.100893
Bernanke, B. S. (1983). Irreversibility, uncertainty, and cyclical investment. Quarterly Journal of Economics, 98(1), 85–106. https://doi.org/10.2307/1885568
Bloom, N., Floetotto, M., Jaimovich, N., Saporta-Eksten, I., & Terry, S. J. (2018). Really uncertain business cycles. Econometrica, 86(3), 1031–1065. https://doi.org/10.3982/ecta10927
Bloom, N., Kose, M. A., & Terrones, M. E. (2013). Held back by uncertainty. Finance and Development, 50(1), 38–41.
Blundell, R., & Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics, 87(1), 115–143. https://doi.org/10.1016/S0304-4076(98)00009-8
Bordo, M. D., Duca, J. V., & Koch, C. (2016). Economic policy uncertainty and the credit channel: Aggregate and bank level U.S. evidence over several decades. Journal of Financial Stability, 26, 90–106. https://doi.org/10.1016/j.jfs.2016.07.002
Brogaard, J., & Detzel, A. (2015). The asset-pricing implications of government economic policy uncertainty. Management Science, 61(1), 3–18. https://doi.org/10.1287/mnsc.2014.2044
Bruno, G. S. F. (2005). Estimation and inference in dynamic unbalanced panel-data models with a small number of individuals. Stata Journal, 5(4), 473–500. https://doi.org/10.1177/1536867x0500500401
Buch, C. M., Buchholz, M., & Tonzer, L. (2015). Uncertainty, bank lending, and bank-level heterogeneity. IMF Economic Review, 63(4), 919–954. https://doi.org/10.1057/imfer.2015.35
Caballero, R. J., & Krishnamurthy, A. (2008). Collective risk management in a flight to quality episode. Journal of Finance, 63(5), 2195–2230. https://doi.org/10.1111/j.1540-6261.2008.01394.x
Dahir, A. M., Mahat, F., Razak, N. H. A., & Bany-Ariffin, A. N. (2019). Capital, funding liquidity, and bank lending in emerging economies: An application of the LSDVC approach. Borsa Istanbul Review, 19(2), 139–148. https://doi.org/10.1016/j.bir.2018.08.002
Dang, V. D. (2020a). Bank funding and liquidity in an emerging market. International Journal of Economic Policy in Emerging Economies, 13(3), 256–272. https://doi.org/10.1504/ijepee.2020.109054
Dang, V. D. (2020b). Do non-traditional banking activities reduce bank liquidity creation? Evidence from Vietnam. Research in International Business and Finance, 54. https://doi.org/10.1016/j.ribaf.2020.101257
Dang, V. D., & Huynh, J. (2021). Bank funding, market power, and the bank liquidity creation channel of monetary policy. Research in International Business and Finance, 59. https://doi.org/10.1016/J.RIBAF.2021.101531
Danisman, G. O., Demir, E., & Ozili, P. (2021). Loan loss provisioning of US banks: Economic policy uncertainty and discretionary behavior. International Review of Economics and Finance, 71, 923–935. https://doi.org/10.1016/j.iref.2020.10.016
Delechat, C., Henao Arbelaez, C., Muthoora, P. S., & Vtyurina, S. (2012). The determinants of banks’ liquidity buffers in Central America. IMF Working Papers series 301. https://doi.org/10.5089/9781616356675.001
Dell’Ariccia, G., Laeven, L., & Marquez, R. (2014). Real interest rates, leverage, and bank risk-taking. Journal of Economic Theory, 149(1), 65–99. https://doi.org/10.1016/j.jet.2013.06.002
Diamond, D. W., & Rajan, R. G. (2011). Fear of fire sales, illiquidity seeking, and credit freezes. Quarterly Journal of Economics, 126(2), 557–591. https://doi.org/10.1093/qje/qjr012
Gatev, E., & Strahan, P. E. (2006). Banks’ advantage in hedging liquidity risk: Theory and evidence from the commercial paper market. Journal of Finance, 61(2), 867–892. https://doi.org/10.1111/j.1540-6261.2006.00857.x
He, Z., & Niu, J. (2018). The effect of economic policy uncertainty on bank valuations. Applied Economics Letters, 25(5), 345–347. https://doi.org/10.1080/13504851.2017.1321832
Hu, S., & Gong, D. (2019). Economic policy uncertainty, prudential regulation and bank lending. Finance Research Letters, 29, 373–378. https://doi.org/10.1016/j.frl.2018.09.004
Huynh, J., & Dang, V. D. (2021). Loan portfolio diversification and bank returns: Do business models and market power matter? Cogent Economics and Finance, 9(1). https://doi.org/10.1080/23322039.2021.1891709
Kashyap, A. K., & Stein, J. C. (2000). What do a million observations on banks say about the transmission of monetary policy? American Economic Review, 90(3), 407–428. https://doi.org/10.1257/aer.90.3.407
Kishan, R. P., & Opiela, T. P. (2006). Bank capital and loan asymmetry in the transmission of monetary policy. Journal of Banking and Finance, 30(1), 259–285. https://doi.org/10.1016/j.jbankfin.2005.05.002
Kupiec, P., Lee, Y., & Rosenfeld, C. (2017). Does bank supervision impact bank loan growth? Journal of Financial Stability, 28, 29–48. https://doi.org/10.1016/J.JFS.2016.11.006
Nguyen, C. P., Le, T. H., & Su, T. D. (2020). Economic policy uncertainty and credit growth: Evidence from a global sample. Research in International Business and Finance, 51(C). https://doi.org/10.1016/j.ribaf.2019.101118
Roodman, D. (2009). How to do xtabond2: An introduction to difference and system GMM in Stata. Stata Journal, 9(1), 86–136. https://doi.org/10.1177/1536867x0900900106
Sakuragawa, M., Tobe, S., & Zhou, M. (2021). Chinese housing market and bank credit. Journal of Asian Economics, 76, 101361. https://doi.org/10.1016/J.ASIECO.2021.101361
Valencia, F. (2017). Aggregate uncertainty and the supply of credit. Journal of Banking and Finance, 81, 150–165. https://doi.org/10.1016/j.jbankfin.2017.05.001
Vo, X. V. (2016). Finance in Vietnam-an overview. Afro-Asian Journal of Finance and Accounting, 6(3), 202–209. https://doi.org/10.1504/AAJFA.2016.079311
Wang, Y., Wang, K., & Chang, C. P. (2019). The impacts of economic sanctions on exchange rate volatility. Economic Modelling, 82, 58–65. https://doi.org/10.1016/j.econmod.2019.07.004
Wu, J., Yao, Y., Chen, M., & Jeon, B. N. (2020). Economic uncertainty and bank risk: Evidence from emerging economies. Journal of International Financial Markets, Institutions and Money, 68(C). https://doi.org/10.1016/j.intfin.2020.101242