Is Excess Bank Liquidity within the West African Economic and Monetary Union Explained by Regulations?

Abstract

For about fifteen years, the banking system of the West African Economic and Monetary Union (WAEMU) has been characterized by excess liquidity. In this paper, we analyze the explaining factors of excess liquidity by considering regulations as key variables and a dynamic Panel Model is used on aggregate banking data covering the period from 1990 to 2013 for the methodology. Results show the following explaining factors: government’s deposits, credit granted to public companies and to central administration, the entry into force of the single agreement act, the act on financial relationships with foreign countries, and on the suppression of usurious transactions and interest rates, the obligation to publish the whole effective rate and the redefinition of new minima caps in terms of share capital.