Abstract:

Excess liquidity of banking sector implies that banks hold too much free funds instead of investing them, thus an undesired or even detrimental phenomenon occurs. Nevertheless,excess liquidity has also some strong points when we look at it as a “tool” supporting a bank’s safety and stability. Under uncertainty conditions, prudential regulations become more restrictive and result in more reserves and further security buffers in addition to basic capital requirements. The paper aims at researching the significance of bank’s excess liquidity for the creation of loan loss provisions and capital adequacy ratio as well as the contribution of an individual bank to liquidity of the whole sector. The research was conducted with financial data from selected banks listed on the Warsaw Stock Exchange.