Digital finance development and bank liquidity creation

This paper explores the impact of digital finance development on bank liquidity creation. Using 118 banks in China from 2011 to 2020, we find that digital finance development has a negative impact on bank liquidity creation. The inhibitory effect mainly exists in on-balance sheet and asset-side liquidity creation and has less impact on off-balance sheet liquidity creation. This negative impact is more pronounced in large banks, national banks, and banks in the western region in China. The bank risk-taking level mediates the relationship between digital finance development and bank liquidity creation.