Liquidity Creation Through Efficient M&As: A Viable Solution for Vulnerable Banking Systems? Evidence From a Stress Test Under a Panel VAR methodology

Konstantinos N. Baltas; George Kapetanios; Efthymios Tsionas; Marwan Izzeldin

doi:10.1016/j.jbankfin.2017.05.005

Liquidity Creation Through Efficient M&As: A Viable Solution for Vulnerable Banking Systems? Evidence From a Stress Test Under a Panel VAR methodology

Konstantinos N. Baltas, George Kapetanios, Efthymios Tsionas, Marwan Izzeldin

King's Business School

Research output: Contribution to journal › Article › peer-review

17 Citations (Scopus)

192 Downloads (Pure)

Abstract

Abstract (CELCH), introduced in this paper, a rise in a bank’s cost efficiency level increases its liquidity creation. By employing a novel stress test scenario under a panel VAR methodology, the CELCH and the direction of causality between liquidity creation and cost efficiency are tested. Moreover, using new measures of liquidity creation (Berger and Bouwman, 2009), the question of whether potential bank mergers and acquisitions (M&As) can enhance liquidity creation and generate additional credit channels in the economy is addressed. The robustness of potential consolidation scenarios are evaluated and compared through the use of new “half-life” measures (Chortareas and Kapetanios, 2013). In line with CELCH, the positive impact of cost efficiency on liquidity creation is shown. The empirical evidence further suggests that potential consolidation activity can enhance the flow of credit in the economy. Bank shocks seem to have the most persistent effect on both liquidity creation and cost efficiency. Finally, doubts are cast on the strategies followed by policy authorities regarding the recent wave of M&As in the banking sector.

Original language	English
Pages (from-to)	36-56
Journal	Journal of Banking and Finance
Volume	83
Early online date	6 Jun 2017
DOIs	https://doi.org/10.1016/j.jbankfin.2017.05.005
Publication status	E-pub ahead of print - 6 Jun 2017

Keywords

Bank distress
Liquidity risk
Efficiency
Capital structure
Regulation
M&As
PVAR

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

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10.1016/j.jbankfin.2017.05.005

Liquidity Creation Through Efficient_BALTAS_Publishedonline6June2017_GREEN AAM (CC BY-NC-ND)Accepted author manuscript, 963 KBLicence: CC BY-NC-ND

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@article{35365ea453284fa0ba374fd30a015cb3,

title = "Liquidity Creation Through Efficient M&As: A Viable Solution for Vulnerable Banking Systems? Evidence From a Stress Test Under a Panel VAR methodology",

abstract = "Abstract (CELCH), introduced in this paper, a rise in a bank{\textquoteright}s cost efficiency level increases its liquidity creation. By employing a novel stress test scenario under a panel VAR methodology, the CELCH and the direction of causality between liquidity creation and cost efficiency are tested. Moreover, using new measures of liquidity creation (Berger and Bouwman, 2009), the question of whether potential bank mergers and acquisitions (M&As) can enhance liquidity creation and generate additional credit channels in the economy is addressed. The robustness of potential consolidation scenarios are evaluated and compared through the use of new “half-life” measures (Chortareas and Kapetanios, 2013). In line with CELCH, the positive impact of cost efficiency on liquidity creation is shown. The empirical evidence further suggests that potential consolidation activity can enhance the flow of credit in the economy. Bank shocks seem to have the most persistent effect on both liquidity creation and cost efficiency. Finally, doubts are cast on the strategies followed by policy authorities regarding the recent wave of M&As in the banking sector.",

keywords = "Bank distress, Liquidity risk, Efficiency, Capital structure, Regulation, M&As, PVAR",

author = "Baltas, {Konstantinos N.} and George Kapetanios and Efthymios Tsionas and Marwan Izzeldin",

year = "2017",

month = jun,

day = "6",

doi = "10.1016/j.jbankfin.2017.05.005",

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TY - JOUR

T1 - Liquidity Creation Through Efficient M&As

T2 - A Viable Solution for Vulnerable Banking Systems? Evidence From a Stress Test Under a Panel VAR methodology

AU - Baltas, Konstantinos N.

AU - Kapetanios, George

AU - Tsionas, Efthymios

AU - Izzeldin, Marwan

PY - 2017/6/6

Y1 - 2017/6/6

N2 - Abstract (CELCH), introduced in this paper, a rise in a bank’s cost efficiency level increases its liquidity creation. By employing a novel stress test scenario under a panel VAR methodology, the CELCH and the direction of causality between liquidity creation and cost efficiency are tested. Moreover, using new measures of liquidity creation (Berger and Bouwman, 2009), the question of whether potential bank mergers and acquisitions (M&As) can enhance liquidity creation and generate additional credit channels in the economy is addressed. The robustness of potential consolidation scenarios are evaluated and compared through the use of new “half-life” measures (Chortareas and Kapetanios, 2013). In line with CELCH, the positive impact of cost efficiency on liquidity creation is shown. The empirical evidence further suggests that potential consolidation activity can enhance the flow of credit in the economy. Bank shocks seem to have the most persistent effect on both liquidity creation and cost efficiency. Finally, doubts are cast on the strategies followed by policy authorities regarding the recent wave of M&As in the banking sector.

AB - Abstract (CELCH), introduced in this paper, a rise in a bank’s cost efficiency level increases its liquidity creation. By employing a novel stress test scenario under a panel VAR methodology, the CELCH and the direction of causality between liquidity creation and cost efficiency are tested. Moreover, using new measures of liquidity creation (Berger and Bouwman, 2009), the question of whether potential bank mergers and acquisitions (M&As) can enhance liquidity creation and generate additional credit channels in the economy is addressed. The robustness of potential consolidation scenarios are evaluated and compared through the use of new “half-life” measures (Chortareas and Kapetanios, 2013). In line with CELCH, the positive impact of cost efficiency on liquidity creation is shown. The empirical evidence further suggests that potential consolidation activity can enhance the flow of credit in the economy. Bank shocks seem to have the most persistent effect on both liquidity creation and cost efficiency. Finally, doubts are cast on the strategies followed by policy authorities regarding the recent wave of M&As in the banking sector.

KW - Bank distress

KW - Liquidity risk

KW - Efficiency

KW - Capital structure

KW - Regulation

KW - M&As

KW - PVAR

U2 - 10.1016/j.jbankfin.2017.05.005

DO - 10.1016/j.jbankfin.2017.05.005

M3 - Article

SN - 0378-4266

VL - 83

SP - 36

EP - 56

JO - Journal of Banking and Finance

JF - Journal of Banking and Finance

ER -

Liquidity Creation Through Efficient M&As: A Viable Solution for Vulnerable Banking Systems? Evidence From a Stress Test Under a Panel VAR methodology

Abstract

Keywords

UN SDGs

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