High liquidity creation and bank failures

We formulate the “High Liquidity Creation Hypothesis” (HLCH) that a proliferation in core activity of bank liquidity creation increases failure probability. test HLCH context Russian banking, where many failures occurred albeit not triggered by swings business cycles or an exogenous shock such as crisis. Using Berger and Bouwman (2009) measures, we find high is associated with greater probability this finding survives multiple robustness checks. Our results suggest regulatory authorities can mitigate systemic distress reduce costs to society from through early identification creators.