A Study On The Liquidity Risk Regulation And Supervision Of Chinese Commercial Banks

Liquidity risk is one of the major risks faced by commercial banks. Liquidity riskis not only “the most lethal risk” for commercial banks, but also has powerfuldestructive force for the global economic system and financial system. Because liquidityrisk has many influencing factors and its formation mechanism is complex, especiallythe banks which has adequate levels of capital may also face liquidity crisis，it is adifficult task for liquidity risk regulation and supervision. During the subprime crisis，alarge number of banks suffered liquidity crunches, and the crisis revealed that thefinancial supervision system has a big flaw in liquidity risk regulation and supervisionaround the world. Liquidity risk regulation and supervision has become one of the mostimportant contents of financial regulatory reform in many countries after the subprimecrisis. Liquidity risk regulation and supervision has also become an important researchtopic in theory sector at home and abroad.The traditional liquidity risk supervision of commercial banks focusing on thesoundness of individual institutions belongs to the category of microprudentialsupervision. However the reality shows that the microprudential supervision is unable toachieve the goal of the security and stability of the banking system as a whole, andmany financial crises are often associated with lack of macroprudential supervision.Macroprudential supervision after the subprime crisis has gradually come under thespotlight. Compared with the microprudential supervision, the most prominent featureof macroprudential supervision is the concern of exposures of whole financial system.Therefore, macroprudential supervision can reduce the instability of the financialsystem to a greater extent and remedy the defects in microprudential supervision.Reviewing the evolution process of liquidity risk regulation and supervision inChina, some progress has been made and the regulatory rules have been graduallyconvergent with international standards. But in the face of the development of financialinnovation and the complexity of the financial market, balance sheet structure, businessdevelopment mode and financing channels of Chinese commercial banks are changed,and influencing factors of liquidity risk of Chinese commercial banks are more complex.The pressure of liquidity risk regulation and supervision rises in China. There had beena liquidity shortfall twice in June and December2013in Chinese inter-bank market.Especially in the "money shortage" event in June2013, panic swept through the commercial banks and Shanghai overnight lending rate rose to13.44%highest. Afterliquidity was pumped into the inter-bank market by the central bank urgently, thetensions of liquidity crunch gradually eased.The fact indicated that the system ofliquidity risk supervision in our country is still not perfect, and liquidity risk supervisiononly focusing on microprudential supervision is difficult to deal with unexpectedliquidity risk events. In view of this, on examining the deficiencies and defects ofliquidity risk regulation and supervision the study from the perspective ofmacroprudential supervision explores how to enhance the effect of liquidity riskregulation and supervision in China.Based on the relevant literature at home and abroad, this dissertation firstlyundertakes the theoretical analyses of liquidity risk macroprudential supervision.Secondly, this dissertation analyzes the process of liquidity risk regulation andsupervision of Basel Committee and the new framework of liquidity risk regulation andsupervision in Basel Ⅲ, and studies the practices and experiences of liquidity riskregulation and supervision of American, Britain and the European Union from theperspective of macroprudential supervision. Thirdly, this dissertation discusses thecurrent situation of liquidity risk regulation and supervision of Chinese commercialbanks, and explores the flaws and problems of liquidity risk regulation and supervisionand how to improve the regulatory effect of liquidity risk. Fourthly, an empirical modelis built to test the relationships between liquidity risk supervision and macroprudentialsupervision. Next, based on the above research, this dissertation puts forward theconstruction ideas of liquidity risk macroprudential supervision system of Chinesecommercial banks, and presents the policies on liquidity risk macroprudentialsupervision respectively from the time dimension and spatial dimension. Finally, thesuggestions on the institutional environment protection of liquidity risk macroprudentialsupervision are made.In this dissertation, two research approaches as the combination of theory andpractice and combination of qualitative analyses and quantitative analyses are adopted.Not only the theoretical analyses of liquidity risk macroprudential supervision but alsothe researches on regulatory practices at home and abroad are included in thisdissertation. In qualitative analyses, the methods of historical analysis, comparativestudy and experience reference are adopted. In quantitative analyses, empirical researchmethods and data analyses are mainly used. The innovations of this dissertation are mainly reflected in the following threeaspects. Firstly, unlike the previous studies focusing on how to maintaining stableoperations of individual banking institutions from the perspective of microprudentialsupervision, based on the perspective of macroprudential supervision this dissertationcarries out a more comprehensive and systematic research on liquidity risk regulationand supervision of Chinese commercial banks in order to improve the overall stabilityof the banking system and financial system. The study in this dissertation does notunduly emphasize the importance of macroprudential supervision, and also does notdeny the role of liquidity risk microprudential supervision. The purpose of thisdissertation is to explore how the macroprudential supervision makes up for the blindspots and lacks of liquidity risk microprudential supervision so as to improve theeffectiveness of liquidity risk regulation and supervision. Secondly, this dissertationconstructs a vector auto-regression model (VAR) to test the dynamic mechanisms ofinteraction of liquidity risk supervision and macroprudential supervision. The empiricalresults indicate that there is a dynamic mutual promotion relationship between liquidityrisk supervision and macroprudential supervision, so it is feasible to study the liquidityrisk supervision from the perspective of macroprudential supervision. On this basis, thisdissertation puts forward the ideas to build the liquidity risk macroprudentialsupervision system of Chinese commercial banks. Thirdly, this dissertation puts forwardthe suggestions on how to supervise the liquidity risk of Chinese commercial banksfrom different perspectives of the time dimension and the spatial dimension. Theprocyclicality of banking system has adverse effects on the stability of the financialsystem and exacerbates the swings of the economic cycle. Available studies onprocyclicality rarely involve liquidity risk’s procyclicality. A panel data model is usedto test and verify the procyclicality of liquidity risk of the commercial banks of Chinafrom the time dimension, and gives proposals on counter-cyclical regulatory policies ofliquidity risk. This dissertation also argues the implementation of differentialregulation，expansion of the scope of regulation and supervision and prevention ofcross-border contagion of liquidity risk from the spatial dimension.