Investigating the Impact of Risk-Based Supervision on Liquidity Creation in Iranian Banks

The exposure of the major part of the global banking system to the financial crisis of 2007-2009 prompted legislators to increase their regulations and supervision in order to prevent future problems. However, banks must fulfill one of their main tasks which involves the creation of liquidity in the economy. The question arises whether more supervision of banks leads to increased bank liquidity? The purpose of this study is to investigate the effect of risk-based supervision on creating liquidity in Iranian banks. To this aim, the data belonging to 15 governmental and private banks in the period of 1394 to 1399 (2015-2020) were analyzed through the combined regression method. To measure liquidity creation, the researcher employed the approach of Berger and Bowman (2009), and the ratio of total due claims and overdue claims to the total bank facilities was used as a risk-based supervision index. The results showed that risk-based supervision has a significant and positive effect on creating liquidity.