Professor at the North West University, Potchefstroom, South Africa.
LIQUIDITY CREATION IN SOUTH AFRICAN BANKS UNDER STRESSED ECONOMIC CONDITIONS
Article first published online: 19 MAR 2012
© 2012 The Authors. Journal compilation © 2012 Economic Society of South Africa
South African Journal of Economics
Volume 80, Issue 1, pages 106–122, March 2012
How to Cite
ESTERHUYSEN, J., VUUREN, G. V. and STYGER, P. (2012), LIQUIDITY CREATION IN SOUTH AFRICAN BANKS UNDER STRESSED ECONOMIC CONDITIONS. South African Journal of Economics, 80: 106–122. doi: 10.1111/j.1813-6982.2011.01286.x
- Issue published online: 19 MAR 2012
- Article first published online: 19 MAR 2012
- Bank liquidity creation;
- financial crisis;
- bank regulation
The financial crisis placed severe pressure on global bank liquidity. Many banks were unable to create sufficient liquidity and had to receive government support or face default. This paper attempts to determine the impact of the financial crisis on liquidity creation within South African banks using a model previously applied to US banks. Four measures of liquidity creation are discussed and applied to data spanning 2004-2009. Although created, liquidity decreases steeply from 2007, liquidity levels in 2009 remain about 45% higher than those of 2004. The four large South African banks created about 80% of the total market liquidity. The authors are aware that the liquidity measures discussed in this paper may not accurately reflect the manner in which South African banks created liquidity before and during the financial crisis as the period under review was characterised by various other factors. These factors include the concurrent rise in securitisation, considerable changes in the South African Reserve Bank's (SARB) stance on monetary policy, historic low-interest rates during the period and severe curtailing of local inter-bank dealing. It remains possible that these factors may have had an impact on the way in which South African banks created and disseminated liquidity. This possibility will be the subject of future research.