Modeling Solvency–Liquidity Interactions in Banking: A Panel VAR Analysis
摘要
This chapter analyzes the dynamic interaction between solvency and liquidity risks in banking using a panel VAR framework. Banks with higher expected capital shortfalls reduce short-term funding, while those with greater reliance on short-term debt experience increases in future solvency risk. These feedback effects are persistent, asymmetric, and more pronounced for capital-constrained banks. Impulse response functions trace the propagation of solvency and liquidity shocks through banks’ balance sheets and reveal significant heterogeneity in adjustment dynamics across institutions and over time.