The relationship between liquidity risk maturity mismatch, business models and risk committee

This study analyses banking liquidity risk through a stock-based indicator, i.e. the loan-to-deposit ratio (LTD), which may include additional relevant information for the EU banking sector. We created an index of maturity mismatch, using the existing lending and deposit gathering relationship during a specific time period, starting from 2011 to 2017. Loans-to-deposits maturity mismatch (LTDm) is a better indicator whenever we try to get information on liquidity management, based on matching of both inflow and outflow. This thesis aims to fill the literature gap by empirically analyzing the main drivers of the LTDm ratio across 4844 EU banks. We investigate the impact of the main drivers of liquidity risk, such as capital and size on my maturity mismatch indicator (LTDm) and apply it to different business models. Furthermore, we collected information about the profiles of directors on the boards of banks creating five categories of risk committee representatives. While employing a generalized method of moment two-step estimator, we find that the banking size increases the liquidity risk, whereas capital is not an effective deterrent. Moreover, our findings reveal that, for savings banks, income diversification raises the liquidity risk while investment banks reliant on non-deposit funding decrease the exposure to liquidity risk. Results show a reduction in liquidity risk when a certain threshold of risk supervisors is defined. The findings have several policy and managerial implications. Our research aimed at reducing bank risk, and helping policymakers’ plans to improve regulatory framework in order to prevent stress situations and handle long-term risk.