Measuring Funding Liquidity and its Determinants within US Banks: An Empirical Investigation in Light of Subprime and Covid-19 Crises

Abstract

This research aims to scrutinize the determinants of bank funding liquidity within American banks. It also endeavors to discern the difference between the impact of the subprime mortgage crisis and that of the covid-19 on bank funding liquidity. The sample used in this paper consists of 70 commercial banks operating in the United States, for the period spanning from 2000 to 2022. The authors utilize the fixed effects model, and the two-step generalized method of moments (GMM) estimator. The results evince that the credit risk and capital have a negative effect on bank funding liquidity. The findings also substantiate that the subprime mortgage crisis negatively affects bank funding liquidity. Nevertheless, the covid-19 pandemic has a positive impact. Then, this article adds to the limited body of research on the determinants of bank funding liquidity in the USA. As a matter of fact, this paper contributes to the literature since it aims to distinguish between two major widespread crises.