Why Do Banks Hold Cash?

Abstract

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.