Bank liquidity hoarding during the COVID-19 pandemic

Abstract

This paper examines the association between bank liquidity hoarding (BLH) and the COVID-19 pandemic. Using a sample of U.S. banks and applying fixed effect estimators, we reveal that banks rack up liquidity assets and liabilities when the pandemic escalates. Our finding holds with alternative BLH and COVID-19 proxies and is further validated by falsification tests. Additional analysis reveals that BLH improves bank stability by reducing earnings volatility, non-performing loans and the propensity to go bankrupt. This study supports the existing literature on BLH and economic adversities and expands our understanding of BLH during the COVID-19 pandemic.