Why Do Banks Hold Cash?

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Why banks hold cash has become a major issue since the 2008 financial crisis demonstrated that cash holding is a major determinant in banks’ chances of survival. This article investigates the determinants of bank cash holding by using international data for the period 1981-2014. Using a  large sample, we document a secular increase in bank cash holding over a 35-year period. We find evidence that the cash holding structure varies over time in the banking industry in contrast with the nonbanking sector.
JEL classification: C3; G21; G28.
Keywords: Liquidity creation; Cash holding motives; Banks.