Study On Commercial Banks' Liquidity Creation In China

According to the modern financial intermediary theory, the reason of the existence of commercial banks is due to two crucial functions:creation of liquidity and risk transfer. From the perspective of the theory development, many researchers studied much on the risk transfer function for commercial banks. A vast literature has emerged on bank risk taking and prudential regulation, supervision, and market discipline to control risk-taking behavior. At present, Most of the empirical literature has focused on banks'role as risk transformers, rather than on their role as liquidity creators, This paper structures some indices to measure liquidity creation for commercial banks, analyzes the trend of liquidity creation and finds the factors that affect it, then gives the corresponding policy suggestions on commercial bank liquidity creation. This paper can be divided into five part:Chapter 1 summarizes the theoretical and practical significance of the topic, makes introduction about the relevant literatures, then states the study methodology and structure.Chapter 2 creates the measuring indices on liquidity creation according to the balance sheet of commercial banks in China. First, this paper summarizes the concept of commercial bank liquidity, and describes the process of liquidity creation, pointing out that liquidity creation is realized by transferring liquid liabilities to non-liquid assets on the balance sheet, that's to say, commercial banks finance non-liquid assets through liquid liability. Second, according to the business types and terms in commercial banks, this paper classified the balance sheet and gives weights to corresponding parts to build the measuring liquidity indices.Chapter 3 analyzes the trend of commercial bank liquidity creation. Firstly, this paper analyzes the trend of the amount of liquidity creation in.all types of commercial banks on use of the method mentioned in the last chapter with the quarter data over 2002-2008 liquidity creation amount in China's commercial banks. Then this paper defines the method of measuring abnormal liquidity creation, calculates its amount in samples. Finally, this paper analyzes the change of abnormal liquidity creation before and after the financial crisis as well as the components making up.Chapter 4 is the empirical test of the factors that affect commercial bank liquidity creation in China. First, it clarifies the regression frame and then describes the factors affect commercial bank liquidity creation in themselves and macroeconomic body. Last, by using the quarter panel data over 2002-2008, this paper analyzed the different contribution to the creation of liquidity that each factors makes, further, regression is made with these panel data to explore the contribution made by each component.Chapter 5 sums up the study and gives the suggestions and the direction for further study. First this part gives the trend of liquidity creation in commercial banks, abnormal liquidity creation before and after the financial crisis, as well as the result of the relationship between the liquidity amount and factors or capability that affect the liquidity creation of commercial banks. Then this paper formulates some suggestions on liquidity creation, which includes:properly measure the magnitude of bank capital, enhance the regulation on liquidity creation and monetary policies to commercial bank classification. Last, this paper performs method of the improvement in indices measuring liquidity creation and further study on it, which includes the relationship on the liquidity creation and commercial bank value, liquidity creation and economic; growth.