Bank Liquid Assets, the Portfolio Motive, and Capital Requirements

René M. Stulz, Alvaro G. Taboada and Mathijs van Dijk ()

No 30340, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Banks hold large amounts of liquid assets. These amounts grow sharply for the largest banks after the global financial crisis (GFC). The standard transaction and precautionary motives for holding liquid assets cannot explain the size and evolution of bank liquid asset holdings. Motivated by the deposit view of banks, we introduce a portfolio motive such that banks hold more liquid assets when they have poorer lending opportunities, making loans and liquid assets substitutes. We find support for the portfolio motive and for its prediction that capital requirement increases help explain the post-GFC growth in the largest banks’ liquid asset holdings.

JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2022-08
New Economics Papers: this item is included in nep-ban and nep-fmk
Note: CF
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