The Effect of Liquidity Risk on the Performance of Commercial Banks

ABSTRACT: Banks, as the most important financial institutions, have a determinant role in circulating currency and wealth of the society and enjoy a special position in financial system. Therefore, the desired and effective performance of banks can create important effects on the development of different economic sectors and increase in the quantitative levels of the output. This study attempts to examine the effect of liquidity risk on the performance of commercial banks using of panel data related to commercial banks of Iran during the years 2003 to 2010. In the estimated research model, two groups of bank-specific variables and macroeconomic variables are used. The results of research show that the variables of bankʹs size, bankʹs asset, gross domestic product and inflation will cause to improve the performance of banks while credit risk and liquidity risk will cause to weaken the performance of bank.