Study On The Causes And Countermeasures Of The Excess Liquidity In Commercial Banks

Liquidity is one of important operating principles for commercial banks. Nowadays, commercial banks'biggest risk is excess liquidity problem. The global financial crisis which caused by sub-prime debt crisis enforce excess liquidity problem, and it also cause some other problems to Chinese commercial banks as idle funds, client losing, revenue declining. So far, there is not much systematic research on excess liquidity problem of Chinese commercial banks. Basically, this problem is usually caused by macro-financial environment and commercial banks' micro-management level, and it often displays in four aspects:rapid expanding deposit and loan balance; continuing high excess reserves; M2/GDP rapid increasing caused by loose monetary policies; monetary market interest rates hovering at low levels.This paper describes the definitions of excess liquidity firstly, then analyses the current situation of Chinese commercial banks, and do the overview of national and international relative studies. Based on this, I put forward relative fields of researching on excess liquidity, and carefully describe the excess liquidity problem by special data and graphs. Moreover, this paper analyses affects of the excess liquidity problem through theoretical aspect and empirical aspect respectively. At the theoretical aspect, this paper believe that imperfect element of financial market, global excess liquidity's impact, the expanding scale of foreign exchange reserves and insufficient effective demand for loans, all these factors do harm to Chinese commercial banks'excess liquidity. Monetary policy environment and the bank's internal assessment result in a vicious cycle of excess liquidity. At the empirical analysis point, this paper selects the bank deposit and loan balance, Shanghai and Shenzhen stock market total value, household saving deposits, enterprises' fixed-time deposits and foreign exchange reserves, which are used to measure commercial banks'liquidity, financial ecological environment, effective demand, enterprises'management level and foreign exchange accounting scale. And I select these five variables'monthly data from 2002 to 2009, and build time-series model, then use co-integration tests and Granger causality test and other econometrical methods, finally, get a conclusion that a long-term stable relationship exists between deposit and loan balance and other four variables.If the excess liquidity problem could not be solved properly, not only do the commercial banks need receivership, but it will also lead to financial crisis, even national economics will break down. According to theoretical and empirical results, this paper analyzes the excess liquidity of commercial banks in two aspects:on the one hand, excess liquidity's macro-financial effects; on the other hand, excess liquidity's micro-financial effects. In order to avoid adverse effects of excess liquidity, China should adjust the structure of trading as soon as possible, expand domestic demand, accelerate the improvement of the capital market system, improve the RMB exchange rate formation mechanism, while banks should improve the operation system, improve risk warning system, innovate commercial banks'financial services.