Liquidity Risk of Conventional Banking: A Case of Pre- and Post-Financial Crisis-2008

Abstract

The global financial crisis had an enormous impact on financial institutions the world over, and Pakistan was never an exemption. Hence this paper investigates the post-financial crisis liquidity risk of conventional banks in Pakistan in consortium with the pre-financial crisis-2008. Methodologically, 15 of 20 conventional banks were selected as a sample, while paired sample t-test was instrumentalized to measuring the pre- and post-financial crisis liquidity risk amongst the sampled banks. As part of the research objectives, the paper equally looks at the chances of the bankruptcy of these institutions through the Altman's Z-Score tool. The paper shows that liquidity risk in the pre and the immediate year following the financial crisis was marginal and insignificant; however, the liquidity risk bar rises and becomes pronounced in the following year. Though the allied demise in Pakistan financial market felt the ruthlessness of this collapse is not comprehensive enough to demolish the financial stability of Pakistan. In addition, despite the sounding performance of Pakistan banking system in the pre and post-financial crisis, the Altman's Z-Score tool is indicative of bankruptcy creeping up amongst the sampled banks in the near future