Bulletin of Monetary Economics and Banking

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This paper analyzes the liquidity of banks, both precautionary and involuntary liquidity. We apply dynamic panel estimation on individual bank data covering the period of Januari 2002 to November 2011. The result shows that precautionary liquidity is more determined by the operation of the bank. On the other hand, the involuntary liquidity is more affected by the financial system condition. Related to the size, the effect of the financial system condition and the macroeconomy is larger for the small banks. Moreover, the monetary policy in the form minimum reserve requirement affects the precautionary liquidity of the small banks; while the central bank rate is less influential to the bank liquidity. Keywords: Banking, Liquidity, General Method of MomentJEL classification: G21, G11, C33

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