Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/294412 
Year of Publication: 
2023
Citation: 
[Journal:] Cogent Business & Management [ISSN:] 2331-1975 [Volume:] 10 [Issue:] 2 [Article No.:] 2208425 [Year:] 2023 [Pages:] 1-25
Publisher: 
Taylor & Francis, Abingdon
Abstract: 
Regulators and managers in the banking sector prioritize the banking system's stability and safety to limit risks, shocks, and potential losses. This study reveals why a bank is more or less stable via bank capital, liquidity creation, and asset diversification. We form a structural model in which bank capital affects stability through liquidity creation, and asset diversification moderates the relationship between liquidity and stability of banks. We employ a moderated mediation model and the Partial Least Squares Structural Equation Modeling (PLS-SEM) with panel data on 27 commercial banks publicly listed in Vietnam from 2014 to 2021. Surprisingly, the empirical results show that raising bank capital reduces liquidity creation while lowering liquidity creation increases bank stability. Thus bank capital has a positive impact on stability via the mediating role of liquidity creation. Moreover, the relationship between liquidity creation and bank stability is moderated by "asset diversification". Higher asset diversification mitigates the detrimental impact of liquidity creation on bank stability and vice versa. Finally, this study recommends using bank capital, liquidity creation, and asset diversification to bolster bank stability.
Subjects: 
Asset diversification
bank capital
bank stability
CAMEL
liquidity creation
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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