臺大管理論叢 NTU Management Review VOL.29 NO.1

CEO Incentives and Bank Liquidity Management 260 commitments and credit lines, which are loans that the borrower has the option draw down at any time over a specified period of time, also require and affect liquidity. Thus, Kashyap et al. (2002) argued that a bank’s loan commitments are like demand deposits. Since both demand deposits and loan commitments offer customers liquidity on demand to meet unpredicted needs, there is a synergy between deposit-taking and lending activities as long as deposit withdrawals and commitment drawdowns are not too highly correlated. Similar to Kashyap et al. (2002), Gatev et al. (2007) argued that banks can use inflows from transaction deposits to offset the liquidity demanded by increased borrowing and then maintain these cash holdings to reduce risk. Therefore, when unused loan commitments rise, banks with high levels of transaction deposits should not have increased risk, whereas banks with low levels of transactions deposits experience increased risk increase. The reduced risk is a diversification benefit of liquidity risk management on both the asset-side (loan commitments) and the liability-side (transaction deposits), and it is termed “deposit–lending risk management synergy.” Therefore, banks with higher levels of both transaction deposits and unused loan commitments are expected to experience a stronger synergy effect in the offset of liquidity risk, which requires lower liquidity reserves compared to banks with lower synergy effects. 2.1.2 Bank Securitization Commercial banks or deposit-taking institutions traditionally played the role of liquidity provider (Diamond and Dybvig, 1983; Holmstrom and Tirole, 1998; Kashyap et al., 2002). However, their role changed to intermediaries between borrowers and capital markets with the emergence of securitization (Loutskina, 2011). Securitization, or converting illiquid assets into liquid securities, has grown tremendously in recent years. Using this instrument, banks can fund new loans by securitizing them to the market. It provides banks with a new source of financing for investment opportunities. Loutskina (2011) examined the role of securitization activities in bank liquidity and funding management. In particular, she investigated how securitization changes the way that individual banks manage funding and liquidity as well as how these changes affect the traditional links between bank liquidity, cost of funds, and loan supply. She argued that securitization helps to transfer illiquid loans into marketable securities through the financial market; therefore, it provides a new source of liquid assets, allowing banks to carry fewer liquid assets to serve unexpected demands from depositors and borrowers. Loutskina (2011) empirically found that liquid assets on bank balance sheets have decreased as banks’ ability to securitize loans has increased. She also showed that