High liquidity creation increases probability of bank failure, IMF paper warns
Authors test theory in context of Russian banking
High liquidity creation "significantly increases" the probability of bank failure, according to a working paper published by the IMF, a theory the authors test in the context of the Russian banking sector.
In High liquidity creation and bank failures, Zuzana Fungacova, Rima Turk and Laurent Weill say Russian banking "provides a natural field experiment" for the theory given the "numerous failures experienced over the past decade".
Not only does the theory stand up, but it survives "multiple
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