Journal of Applied Mathematics
Volume 2012 (2012), Article ID 743656, 27 pages
http://dx.doi.org/10.1155/2012/743656
Research Article

Bank Liquidity and the Global Financial Crisis

Frednard Gideon,1 Mark A. Petersen,2 Janine Mukuddem-Petersen,3 and Bernadine De Waal2

1Department of Mathematics, Faculty of Science, University of Namibia, Private Bag 13301, Windhoek 9000, Namibia
2Research Division, Faculty of Commerce and Administration, North-West University, Private Bag x2046, Mmabatho 2735, South Africa
3Economics Division, Faculty of Commerce and Administration, North-West University, Private Bag x2046, Mmabatho 2735, South Africa

Received 2 November 2011; Revised 22 January 2012; Accepted 5 February 2012

Academic Editor: Chuanhou Gao

Copyright © 2012 Frednard Gideon et al. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

We investigate the stochastic dynamics of bank liquidity parameters such as liquid assets and nett cash outflow in relation to the global financial crisis. These parameters enable us to determine the liquidity coverage ratio that is one of the metrics used in ratio analysis to measure bank liquidity. In this regard, numerical results show that bank behavior related to liquidity was highly procyclical during the financial crisis. We also consider a theoretical-quantitative approach to bank liquidity provisioning. In this case, we provide an explicit expression for the aggregate liquidity risk when a locally risk-minimizing strategy is utilized.