BANK LIQUIDITY CREATION OF MALAYSIAN COMMERCIAL BANKS FROM 2011 TO 2018

Abstract

This study focused on measuring bank liquidity creation for Malaysian commercial banks. Liquidity creation wasmeasured using the ‘catnonfat’ approach introduced by Berger and Bouwmann (2009). In the ‘catnonfat’ approach, all on-balance sheet items of each bank evaluated in this study were classified as: liquid, semi-liquid and illiquid to obtain the total liquidity creation for the respective year. To test the hypothesis that bank liquidity creation was dependents on the bank size, the banks in this study were split into: large, medium and small sizes. The sample data in this study covered 22 commercial banks in the Malaysian banking sector from 2011 to 2018. It was observed that the total liquidity created annually by the sampled Malaysian commercial banks during the studyperiod showed an increasing trend. Large banks were the greatest contributors to liquidity creationed in the economy. They were followed by medium-sized banks which comprised many banks and the lowest contributors to liquidity creation were small-sized banks.