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year 18, Issue 63 (5-2025) |
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Investigating the effect of liquidity creation on systemic risk in Iran's banking network (the perspective of size, financing structure and capital structure)
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Leyla Payman   |
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Abstract: (131 Views) |
Creating liquidity is one of the major activities of banks, and many of their direct and indirect activities depend on the ability to provide liquidity to customers. Meanwhile, by changing the structure of their income through traditional activities, commercial banks have turned to fee-based operations and balance sheet items in order to maintain their profitability in today's changing markets. However, the use of these items, along with the positive effects it creates, exposes banks to numerous risks, which in case of improper management can lead to a lack of liquidity and unexpected losses. Banks are also vulnerable indirectly through shared assets. An issue that causes the price cycles of assets and non-cash collateral such as the housing and real estate sector to affect the balance sheet of the entire banking network and creates feedback loops between the asset price and the leverage role of banks as another dimension of systemic risk in the financial system. With this approach, the present study has investigated the effect of liquidity creation on systemic risk in Iran's banking network from the perspective of size, financing structure and capital structure during the period of 2012-2022. In this study, in order to achieve the desired goals, the liquidity creation using the three-step method of Berger and Bowman (2009) is measured and its effect on the systemic risk index obtained from the Bayesian Principal Component Analysis (BPCA) method based on size, financing structure and capital structure of banks was examined in the framework of 5 panel models; To determine the number of samples, the systematic elimination method was used, and a total of 9 banks, including New Economy, Mellat, Entrepreneur, Tejarat, Parsian, Saderat, Post Bank, Sina and Pasargad, were selected as the statistical sample of the research. Based on the results, in general, the systemic risk in Iran's banking network has increased during the years 2012-2022, and on average, the highest systemic risk is related to Mellat, Saderat, Tejarat, and Post Bank respectively, and the lowest amount of risk is also has been related to the banks of Karafarin, Sina, Ekhtesad Novin and Pasargad. Based on the results, the amount of liquidity creation in the selected banks in 2021 compared to 2012 has increased almost 8 times. However, in 1401, with the contraction and control procedure applied by the central bank on the banks, the intensity of the banks' liquidity creation has been reduced to some extent. During 2012-2022, the liquidity creation of state banks was more than that of private banks, and Mellat, Saderat, Pasargad, Tejarat and Parsian banks had the highest amount of liquidity creation compared to other banks. According to the results of the regression models of the research, the creation of liquidity has a negative and significant effect on the systemic risk in the country's banking system, and the effect of this variable on the systemic risk is greater in larger banks than in smaller banks. On the other hand, the effect of liquidity creation on systemic risk is greater in banks with a lower deposit-to-asset ratio than banks with a higher deposit-to-asset ratio. Finally, the results showed that the effect of liquidity creation on systemic risk in banks with a lower equity-to-asset ratio is greater than banks with a higher equity-to-asset ratio. |
Article number: 3 |
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Type of Study: Theoretical Article |
Subject:
Corporate Finance and Governance (G3)
Received: 2024/07/5 | Accepted: 2025/06/5 | Published: 2025/06/5
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