Determinants of Bank Liquidity in the GCC: An Extreme Bounds Analysis Approach

Purpose: This paper examines the determinants of commercial bank’s liquidity.Study design/methodology/approach: We employ two variants of the extreme bounds analysis (EBA) methodology—Leamer’s and Sala-I-Martin's—to analyze bank-specific and macroeconomic variables.Sample and data: A balanced panel of 45 banks covering the 2010–2024 period in the Gulf Cooperation Council (GCC) countries.Results: Using Leamer’s EBA, we find three variables that are robust determinants of short-term liquidity (LTA): bank size, efficiency, and the consumer price index (CPI). In contrast, only asset quality is a robust determinant of long-term liquidity (LDT). Under the less restrictive Sala-I-Martin EBA, six of the 13 potential variables are robust determinants of LTA: bank size, efficiency, exchange rate, lending rate, CPI, and GDP growth. For LDT, the robust determinants are asset quality, asset management, deposit ratio, equity-to assets ratio, exchange rate, and GDP growth.Originality/value: This study is likely the first to apply both Leamer’s and Sala-I-Martin's EBA methods to dissect commercial bank liquidity dynamics in GCC economies.Research limitations/implications: The findings provide empirical insights for researchers and bank managers into which variables significantly affect liquidity. They also offer guidance for GCC regulatory agencies in designing stress test models by focusing on robust variables and excluding fragile ones with limited impact.