2008 September 1

Jours fixes take place on the first monday of the month, starting at 5:00 p.m., in the "DZ Bank Lecture Room" of the House of Finance (Campus Westend).

[Christian Rauch, E-Finance Lab]

In spite of the large body of theoretic literature on bank liquidity, there are only a few papers measuring the actual creation of bank liquidity. This lack of empirical evidence on bank liquidity creation is astounding, as liquidity is not only of high practical relevance to the subjects of an economy but is also used in bank theory to help explain the existence and role of banks in an economy. To add to this body of literature and help further understand the liquidity transformation and creation by banks, the following paper measures the liquidity created by German savings banks over the period 1997-2006. To do so, we apply two measures of liquidity creation: the Berger/Bouwman method introduced in 2007 and the Deep and Schaefer method introduced in 2004. The secondary goal of the paper is to find out which determinants influence the liquidity creation or destruction over time. Existing micro- and macroeconomic theories on banking provide specific predictions regarding the effects of certain determinants on bank liquidity. Our paper empirically tests these effects on the liquidity created by German savings banks between 1997 and 2006 and therefore helps to understand how bank liquidity is influenced and which factors are responsible for the changes in bank liquidity creation.