OPTIMIZING BANK LIQUIDITY IN CENTRAL AND EASTERN EUROPE

This research paper responds to the current international concern in bank liquidity and offers a model for the optimization of the bank liquidity level, by identifying the marginal impact of the bank liquidity ratio on bank profitability. The non-linear relationship between these two variables is validated through the GMM procedure, on a panel of Eastern and Central European commercial banks over the period 2003-2010. The optimal level of bank liquidity resulted after getting the maximum condition for return on equity and return on assets, as measures of profitability, enhances the recent financial crisis effects.