Excess liquidity and bank stability: Empirical evidence in Vietnam

Purpose: The article has developed a research model to measure the effect of liquidity and excess liquidity on bank stability. Design/methodology/approach: Other variables such as bank size, loan growth, economic state, and inflation are also incorporated into the research model to ascertain the degree of impact on the stability of banks. To achieve the research goal, data was taken from 28 Vietnamese commercial banks in the period from 2010 to 2022, using quantitative research methods and linear regression models. Findings: According to research findings, managers are more likely to engage in moral hazard-related behavior when there is excess liquidity available because they are more willing to take on greater risks when making credit or investment decisions. Research limitations/implications: According to the research findings, excess liquidity has an adverse impact on Vietnam's banking system's stability. Since managers are more likely to take on greater risks when making credit or investment decisions when there is excess liquidity, this can lead to moral hazard-related behavior. However, the research is also limited because it is not possible to compare this relationship between different types of banks and compare it with other nations due to data limitations. Originality/value: The research has important implications for policymakers and administrators in liquidity management to increase bank stability.