High liquidity creation increases probability of bank failure, IMF paper warns

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High liquidity creation "significantly increases" the probability of bank failure, according to a working paper published by the IMF, a theory the authors test in the context of the Russian banking sector.

In High liquidity creation and bank failures, Zuzana Fungacova, Rima Turk and Laurent Weill say Russian banking "provides a natural field experiment" for the theory given the "numerous failures experienced over the past decade".

Not only does the theory stand up, but it survives "multiple

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