The study investigated the adverse liquidity risk spillovers from South Africa to the rest of the banking systems in the sub‐Saharan Africa region. The study employed the GVAR macroeconometric framework and its associated generalised impulse response function (GIRF) to explore the interdependence and evolution of shocks to other countries in the SSA, given a negative standard deviation shock to South Africa’s liquidity. We used quarterly data from 31 countries spanning from 1996 to 2019. This includes the period of marked proliferation of cross‐border banking in the region. The GIRFS provided the time profile for 31 countries. The time profiles of the GIRFS of each country’s banking system liquidity were analysed. Our results show that South Africa’s banking system liquidity has contemporaneous interdependence with several other banking systems in the SSA region. An adverse shock to South Africa’s banking system liquidity has a heterogeneous effect on several countries; the magnitude is generally moderate. While the shock triggers adverse spillover effects on the liquidity position of 19 banking systems, the liquidity level of 10 banking systems increases, and the liquidity of three banking systems remains resilient over time. The implication is that an extreme adverse liquidity shock could trigger a liquidity crisis in the majority of the banking systems in the SSA region. Hence, the negatively affected countries should minimise their banking system connectedness with the South African banking system and monitor an extreme liquidity shortage in South Africa.
Nsiah et al. (Thu,) studied this question.