Work

Investigating the Relationship Between Liquidity Risk, Credit Risk, and Solvency Risk in Banks Listed on the Iranian Capital Market: A Panel Vector Error Correction Model

Year: 2025

Type: article

Abstract: In the aftermath of global financial crises and amid increasing complexity in banking operations, understanding and managing various types of risk—especially liquidity, credit, and solvency risks—has become a global concern for financial stability. This study addresses a critical gap in the literature by examining the dynamic interrelationships among these three types of risk in the context of emerging markets. Using data from 21 banks listed on the Iranian capital market from 2011 to 2023, we employ a Panel Vector Error Correction Model (VECM) alongside panel impulse response analysis to assess both short- and long-term dynamics. Our results reveal that an increase in liquidity positively impacts bank solvency, while credit risk negatively affects solvency but does not significantly influence liquidity risk. These findings contribute to the theoretical understanding of systemic risk interactions in banking and provide practical insights for policymakers and financial institutions seeking to enhance risk management strategies in volatile market environments.

Source: Economies

DOI: 10.3390/economies13050139

Authors: Pejman Peykani, Mostafa Sargolzaei, Cristina Tanasescu, Seyed Ehsan Shojaie, Hamidreza Kamyabfar

Institutions: Khatam University, Allameh Tabataba'i University, Lucian Blaga University of Sibiu, Islamic Azad University, Tehran, Islamic Azad University, Science and Research Branch

Language: English

Topic: Banking stability, regulation, efficiency

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: gold

Estimated APC paid: $2,172

OpenAlex ID: W4410499544

FWCI: 3.756

Cites: 98

Cited by: 4

Related to: 10