Bank of Finland researchers examine role of liquidity creation in bank failures

Ripples in water

The Bank of Finland's Institute for Economies in Transition has released a discussion paper examining the role of excessive liquidity creation in triggering bank failures – using Russia between the years 2000–07 as its case study.

The paper introduces the 'Excessive Liquidity Creation Hypothesis', whereby a rise in a bank's core liquidity creation activity increases its probability of failure. Russia experienced many bank failures during the last decade and, using Berger and Bouwman's (2009)

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