How do bank characteristics affect the bank liquidity creation channel of monetary policy?

Abstract

The paper examines how monetary policy affects bank liquidity creation, particularly highlighting the asymmetric effects induced by bank-specific characteristics. Using a sample of Vietnamese commercial banks during 2008–2018, we confirm the existence of the bank liquidity creation channel of monetary policy. We further document the conditionality on this new banking channel that liquidity creation rises more among smaller and more liquid banks amid monetary policy easing. These findings call for the focus of regulators on monitoring monetary policy and bank characteristics to shape the functioning of the bank liquidity creation channel.