Date of Award
Open Access Dissertation
Moore School of Business
Allen N. Berger
My dissertation includes three essays on bank liquidity creation and systemic risk. In the first essay, we examine the role of distracted institutional investors in banks in one of the most comprehensive measures of bank output, bank liquidity creation. We employ institutional investor distraction measure developed by Kempf et al. (2017). With a sample of publicly listed U.S. banks over the period of 1986-2016, we find that as institutional investors become more distracted, banks create more liquidity on the asset-side and off-balance sheet side. These results are stronger for large banks relative to small banks and are more pronounced during crises and high uncertainty times. The results suggest a previously undiscovered outcome of institutional investor distraction with serious potential consequences for the financial system and real economy.
In the second essay, we investigate the effects of banking powers on bank liquidity creation and documents supportive evidence on the certification role of universal banking powers offsetting the conflict of interest view. We find that banking powers increase bank liquidity creation in the same country. The results are robust to subsample tests and additional controls. To better mitigate the endogeneity concerns and build a casual effect, we examine the effect of banking powers in home country on liquidity created by banks’ foreign subsidiaries. We find that lower banking powers in home country increase bank liquidity creation of foreign subsidiaries. These results are also supportive for international regulatory arbitrage in the financial services industry.
In the third essay, we examine the effects of financial regulatory uncertainty on the systemic risk contributions of banks in the U.S. We find that financial regulation uncertainty leads to significantly higher systemic risk contributions of banks. Supportive mechanisms behind this finding are exacerbating bank loan portfolios and increased stock market volatility. Results are robust to endogeneity concerns. Therefore, regulators and policymakers should take the precision and proactiveness of their regulatory actions into account.
Kirimhan, D.(2021). Bank Liquidity Creation and Systemic Risk. (Doctoral dissertation). Retrieved from https://scholarcommons.sc.edu/etd/6249