The role of bank size in liquidity management: Insights from emerging markets

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Abstract

Liquidity management is a critical function for banks, particularly in emerging market economies (EMEs), where financial markets are less developed and more volatile (Tan & Tuluca, 2024; Umar et al., 2023). However, the extent to which bank size influences liquidity management strategies in EMEs remains insufficiently explored. This study investigated the relationship between bank size and liquidity management practices using a sample of 40 commercial banks from 11 EMEs. Employing the system generalised method of moments (GMM) estimator, the study analysed how bank size affects liquidity buffers and funding strategies. The findings reveal significant differences in liquidity management between small and large banks. Large banks maintain lower liquidity reserves, leveraging better access to external funding and capital markets, whereas small banks hold higher liquidity buffers due to limited funding options and greater financial constraints. Risk aversion and prudence emerge as key factors shaping liquidity strategies across bank sizes. These insights contribute to the broader understanding of liquidity dynamics in EMEs, with implications for financial stability, banking regulation, and policy design. The study provides valuable guidance for regulators, practitioners, and academics, highlighting the need for tailored liquidity regulations that consider the distinct challenges faced by banks of varying sizes in EMEs.

Keywords: Bank Size, Bank Liquidity Management, Commercial Banks, Emerging Markets, System GMM

Authors’ individual contribution: The Author is responsible for all the contributions to the paper according to CRediT (Contributor Roles Taxonomy) standards.

Declaration of conflicting interests: The Author declares that there is no conflict of interest.

JEL Classification: G21, G30, G32, M42, M48

Received: 19.11.2024
Revised: 30.03.2025; 29.08.2025
Accepted: 09.09.2025
Published online: 12.09.2025

How to cite this paper: Chikutuma, C. N. (2025). The role of bank size in liquidity management: Insights from emerging markets [Special issue]. Risk Governance & Control: Financial Markets & Institutions, 15(3), 214–225. https://doi.org/10.22495/rgcv15i3sip4