Bank Liquidity Creation: A New Global Dataset for Developing and Emerging Countries

The pre-Global Financial Crisis build-up, followed by the post-crisis collapse, in bank liquidity creation in developed countries is well-documented (Berger and Bowman, 2009). Comparable analyses on developing and emerging countries (DECs) have been severely hindered by the lack of detailed bank-by-bank balance sheet data. This paper proposes a new, high-frequency, Aggregate Bank Liquidity Creation (A-BLC) measure for 114 DECs on a comparable cross-country basis, which relies on macroeconomic, country-wide, banking systems’ balance sheet data. The A-BLC database allows us to assess the extent of bank fragility arising from illiquidity associated with intermediation at the banking system level for every DEC, at a monthly frequency over the period 2001-2016. Our measure captures more accurately than other measures proposed in the literature the evolution of bank liquidity creation in the DECs. Stylised facts and panel-regression analysis suggest a sharp pre-crisis build-up and post-crisis fall in liquidity creation in DECs, larger then that observed for developed countries. In addition, financial depth and stability appear as particularly important drivers of A-BLC in DECs.

This is a post-peer-review, pre-copyedit version of an article published in Review of World Economics. The final authenticated version is available online at: https://doi.org/10.1007/s10290-021-00434-1