The effect of financial repression policy on bank liquidity risk (evidence from Central Bank of Iran) Online publication date: Tue, 15-Nov-2022
by Seyed Ehsan Hosseinidoust; Armin Saatian
Afro-Asian J. of Finance and Accounting (AAJFA), Vol. 12, No. 5, 2022
Abstract: This study investigates the long-run effect of financial repression policies on liquidity risk in the Iranian banking sector during 2006 and 2018. As a method of econometrics, the autoregressive distributed lag (ARDL) approach is applied. Financial repression policies, in other words, the central bank's interventionist monetary policies have been assessed based on the endogenous money view using four indicators: the real interest rate, the legal reserve ratio, the unofficial exchange rate, as well as the bank credit to GDP ratio which can show the financial depth of an economy. The empirical results revealed that a rapid financial liberalisation policy could make the banking system riskier. Although the financial repression policies in the Iranian banking system have generally reduced the liquidity risk, the bank losses have been passed on through hidden taxes to depositors and domestic money holders, which illustrates the need for structural reforms in the Iranian banking system.
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