Abstract

During periods of sanctions and recession, access to financial transactions can be restricted, leading to reduced income for some banks. This study investigates the influence of bank capital on liquidity creation and income diversification in the Iranian banking sector, with the aim of providing insights into addressing economic challenges and identifying growth opportunities. To achieve this objective, the study employs two multiple regression models incorporating various financial variables, including the capital adequacy ratio. Utilizing multivariate regression analysis with EViews 10 software, descriptive and inferential statistical methods are applied to data spanning seven years from ten banks. The results indicate a significant positive correlation between increased bank capital and both liquidity creation and income diversification. In the first model, the adjusted coefficient of determination is 40%, suggesting that bank capital and control variables account for 40% of the variation in liquidity creation. In the second model, the adjusted coefficient of determination stands at 52%, indicating that bank capital and control variables account for 52% of the variability in income diversification. These findings underscore the crucial role of higher capital levels in enhancing liquidity management and diversification strategies, especially during economic adversities such as sanctions and recessions. Therefore, enhancing bank stability becomes critical by increasing bank capital through liquidity creation and income diversification. Despite limitations in sample size and timeframe, this research provides valuable insights for decision-makers aiming to enhance stability through effective bank policies, including adherence to capital adequacy requirements, robust risk management frameworks, and diversification strategies.Top of Form