Panel C in Table 4 shows that the effects of liquidity creation andregulatory capital on bank profitability are also not uniform acrossbank size. We find evidence that both liquidity creation and regulatorycapital have a negative impact on bank profitability althoughsuch an impact is once again limited to small banks. Our resultsare consistent with Goddard, McKillop, and Wilson (2008) andCebenoyan and Strahan (2004) who suggest that small banks' profitabilitytends to be more capital dependent as large banks have ahigher propensity to engage in more off-balance sheet or fee-basedactivities that generate higher volatile revenues with less capital.Overall, the results are driven by small banks that make up a largeproportion of our sample.