Title: Impact of Government Borrowing on Bank Liquidity Crisis: <i>An Econometric Analysis</i>
Abstract: This paper attempts to reveal the ultimate determinants affecting the recent liquidity position of commercial banks in Bangladesh. The whole scenario is presented through focusing on the various elements affecting the liquidity position in commercial banks over a period of time. This liquidity position of commercial banks is affected by many macro economic variables such as savings and investment, distribution of credit, interest rates and economic growth. The models developed in this paper divulge that some of the determinants such as share price Index, overall investment position of commercial banks, M2 Currency, overall classified loans of commercial banks and outstanding amount of L/C significantly affect the liquidity position of commercial banks in Bangladesh. Although net government borrowing from banking sector also affects the liquidity position of commercial banks through creating crowding-out effect for private investors, the models mentioned in this study reveal that net government borrowing is not individually significant in explaining liquidity position of commercial banks rather this net government borrowing along with other variables is jointly significant in explaining liquidity position. As a corollary, this paper examines whether the so-called Government borrowing in recent years may cause the liquidity crisis in commercial banks of Bangladesh.