To examinewhether the interrelationships among liquidity creation,regulatory capital, and bank profitability are sensitive to bank size, wesort the sample banks into large, medium, and small banks. Panel A ofTable 4 shows some evidence that regulatory capital affects liquiditycreation for all banks although the impact appears strongest for smallbanks. Furthermore, the effect of capital on liquidity creation is sensitiveto howthe capital ratio ismeasured. For example, the effect of regulatorycapital is positive for small banks using CARA and CARC, but insignificantusing CARB.Panel B further shows thatwhile liquidity creation has a positive impacton banks' capital, such impact is confined to small banks only.Taken together, the results in Table 4 suggest that the positive bidirectionalrelationship between regulatory capital and liquidity creation islargely driven by small banks.