The Formation Mechanism Of Liquidity About Total Amount Surplus And Structural Shortage In China’s Bank System

In recent years,The supply of money keeps high in our country, and the ratio of M2 to GDP had reached 1.94 in 2013 which created a historical high. Monetary degree in our country is much higher than the other countries. In our country, the supply of money keeps adequate and increasing steadily on the whole economic level.In our country’s financial system, indirect finance occupies the leading position, and banks occupies a decisive position in the Financial Industry. Since the expression of liquidity surplus of bank system first appeared in the government working report(2007),liquidity surplus of bank system has attracted wide attention. From 2008 to 2013,according to government data, the actual deposit reserve rate, which includes legal deposit reserve rate and excess deposit reserve rate, was 20.6%, 18.6%, 20.5%, 23.3%, 23.3% and 22.3%, that is much higher than other countries at the same time. The facts proves that banks of China were flush with liquidity.However,at the background of liquidity of bank systemwas so sufficient, the bank system of China was attacked twice by liquidity strain, which was called “money shortage” by Media, in June and December of 2013. Money market interest rates became higher and higher, that meant that China’s banking system liquidity suddenly became tense, and it also received widespread concern and worry.Why did financial strain happen at the background of that liquidity of bank systemwas obviously sufficient. This phenomenon could be described as China’s special liquidity, and it was called aptly "the mystery of liquidity in China" by some scholars. How to treat the liquidity problem in the bank system and how to reveal and crack "the mystery of liquidity in China", which is the central issue of this article.This paper is divided into the following parts. The first part includes Chapter One, Chapter Two, and Chapter Three. And the main content of this part is to raise questions, On the basis of reviewing related literatures, this paper determine a definition to liquidity of bank system, and provides new views on it. My views are that liquidity of bank system in China issurplus of total amount, structural shortage,and this paper gives the concept definition and the phenomenon description of the surplus of total amount and structural shortage which can be analyzed in the space and time domain.Chapter One is the introduction of this article, and introduce the background of the paper, research contents, research ideas, innovation etc.Chapter Two is the literature review, and review and summarize the literature on the subjects related to this article. It is about the concept definition of liquidity of bank system, and the concept definition and measurement of the liquidity surplus and liquidity shortage. The rest is the points on the liquidity of bank system, the reasons of the liquidity surplus and shortage etc.Chapter Three presents the author’s view, and the special liquidity of our country in the bank system is validated through the description of the phenomenon and the contrast of international experience etc.Its basically behave in: in our country, liquidity surplus occurred at the background of that the liquidity is surplus internationally, but the liquidity surplus is mainly for liquidity surplus of the bank system, and liquidity surplus turned to liquidity shortage amid the subprime mortgage crisis from 2007 to 2008. and the performance of liquidity shortage of bank system in the structure is significantly different from traditional bank theory and empirical data in western countries(traditional bank theory and empirical data in western countries are about that the big banks are liquidity shortage and the party which finances the funds; the small bank are liquidity adequate and the party which produces the funds).But in our country, the big banks are liquidity adequate and are mainly the party which produces the funds, and the small bank are liquidity shortage and are mainly the party which finances the funds.The second part is Chapter Four, Chapter Five and Chapter Six. They are about the formation mechanism of surplus of total amount and structural shortage, and the empirical test.Chapter Four is the formation mechanism of surplus of total amount and structural shortage in the space domain. In this paper, we argues that the formation mechanism of surplus of total amount and structural shortage in the space domain is the same. The changes of the money base,which are refinancing channels become weaken and foreign exchange channels become the main channel of base money by replacing refinancing channels, cause surplus of total amount. And in the same time, foreign exchange become the main channel of base money, and the different state that the large banks and the small banks conduct the foreign exchange settlement and sale business causes structural shortage in the space domain, on the other hand.Chapter Five is the empirical test of the formation mechanism above, and includes two parts: the first part is the empirical test of liquidity surplus of total amount which is caused by exchange share. The actual deposit reserve rate is set as proxy variable which reflects liquidity surplus of total amount. The deposit reserve rate, net foreign assets, the difference of deposit and loan, the year-on-year rate of Industrial Added Value which are indexes in timesequenc, have become a system, and building a VAR model is to examine the influence of the increase of foreign exchange which is caused by double surpluses of trade to liquidity surplus of total amount. The second part, the exchange share become the main delivery channel of base money causes structural shortage in the space domain. And in order to explanation Analysis and analytical precision, the part include two empirical tests. The first one is that categories of data which is about large Chinese-funded banks, medium-sized Chinese-funded banks and small Chinese-funded banks builds a fixed effects model of simple panel data. The second a sample of annual panel data, from 2006 to 2013, which includes 73 banks which are large commercial banks, national joint-stock banks, city commercial banks and rural Commercial Bank, build a fixed effects model of large panel data. The two empirical tests are that bank liquid assets to total assets is set as proxy variable which reflects liquidity surplus of total amount. The explanatory variables are legal deposit reserve rate, liquid assets which are got by the foreign exchange settlement and sale business, and the difference of deposit and loan. In the second empirical test, liquid which is got by he foreign exchange settlement and sale business, is set as a dummy variable. The two empirical tests are aimed to test the affects of that structural shortage of liquidity in the space domain is caused by the foreign exchange settlement and sale business, by regression analysis of panel data.In order to complete integrity analysis, Chapter Six is about formation mechanism of structural shortage in the time domain and the empirical test. The seasonal factors of fiscal deposits and the disturbance factors of IPO will affect the liquidity and the interest rate fluctuations in the currency market. The two reasons cause structural shortage in time dimension. In this paper, shibor change rate is set as an indicator to measure the structural shortage of liquidity in the bank system in the time domain, and the other indicators are financial savings rate change, A share growth in the first amount of funding, the difference between the rate of change in foreign exchange and net invested amount of central bank bills which respectively reflect financial savings factor, IPO factor, the central bank open market operations to hedge factor. Measure the affects of that structural shortage of liquidity in the time domain is caused by the seasonal factors of financial deposits and the disturbance factors of IPO, by building a Var model.The third part is Chapter Seven. This part is a summary of the study conclusions of the whole article, and put forward he relative policy advice, and point out the future direction for further research in the end.The main conclusions of the paper includes:First, the changes of the money base,which are refinancing channels become weaken and foreign exchange channels become the main channel of base money by replacing refinancing channels, cause liquidity surplus of total amount and structural shortage in the space domain.Second, the seasonal factors of financial deposits and the disturbance factors of IPO will affect liquidity and interest rate volatility in currency markets, and cause structural shortage in the time domain.