Bank Characteristics and Liquidity Transformation: The Case of GCC Banks

This paper uses a simple measure of liquidity creation to examines empirically the effect of bank capital and other micro and macro-characteristics on liquidity creation. We apply the analysis to data from a sample of 43 banks operating in 6 of the countries comprising the GCC (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates) market over the period 1998-2008. Large banks with high capital seem to produce most of the liquidity by the banking sector in the GCC market. However, the negative relationship between profitability and liquidity created by banks indicate either high loan losses or high cost of intermediation.