Modelling the dynamics of Liquidity risk and bank profitability. A case of U.S. commercial banks

Abstract

This study examines the effects of liquidity risk on bank profitability in different time horizons in the United States of America's commercial banking sector over the years 2011 to 2020. The effects are studied using data obtained from 10 commercial banks in the United States of America. Both the two-step system GMM and the generalized least squares methods are applied. The results from two-step system GMM show that liquidity risk negatively impacts bank profitability across all horizons. The random effects estimator on the other hand does not show any robust impacts of liquidity risk on bank profitability.