Research On Liquidity Risk Early Warning Of China's Commercial Banks

Liquidity is the life of commercial banks. Maintaining an appropriate liquidity is very important to maintain the security of bank's assets and improve the operation profits of commercial banks. Liquidity risk of commercial banks is associated with operating activities, it is one of the main risks that commercial banks face. With the opening of financial markets, commercial banks face more liquidity risk. Because of the existence of national credit, Commercial bank liquidity risk has not drawn enough attentions of regulatory agencies and commercial banks. With the withdrawal of national credit, and economy changes, liquidity risk early warning and supervision of commercial banks are becoming increasingly important. Controlling and preventing bank's liquidity risk has been a priority task of the central bank. Liquidity problem is one of the main difficulties in the financial sector which are still unresolved in the world. Liquidity payment crisis may emerge if liquidity problems are not resolved well. Once liquidity risk becomes liquidity crisis, it may cause irreversible losses or even threaten the survival of banks. So, making deep study of the formation of liquidity risk in commercial banks, studying liquidity risk early warning of China's commercial banks, predicting the liquidity risk precisely in the future, preventing liquidity risk in the bud, minimizing the liquidity risk, are important topics of finance field.Firstly, this paper studies the present situation and developments of liquidity risk early warning at home and abroad, elaborates the theoretical and practical significance of liquidity risk of China's commercial banks. Secondly, this paper summarizes related theories of liquidity risk early warning, the meaning of liquidity risk early warning of commercial banks is also defined. Then, the paper analyzed the main content of liquidity risk early warning. On the basis of the status of commercial banks liquidity risk, this paper analyzes deeply the causes of commercial banks liquidity risk, points out the problems in liquidity risk management of commercial banks. Then, the paper puts forward the necessity of liquidity risk early warning. Third, according to the principle of building index system, combined with the main current measuring indicators of commercial banks liquidity risk, liquidity risk early warning index system is constructed."3σ"rule is used to divide early warning limit, the early warning level is divided to none, slight, middle and major. At last, liquidity risk early warning model is established, and it is used to make empirical analysis of the sample commercial bank's liquidity risk. Principal component analysis is first used to assess commercial bank's liquidity risk, then,"3σ"rule is used to judge the status of the sample bank's liquidity risk, so every year's warning level are determined. The outcome of principal component analysis and the evaluation value of liquidity risk early warning index are trained and tested in BP neural network model. Using the trained BP neural network model, the liquidity risk status of the sample commercial bank is predicted. Researching the liquidity risk early warning may help commercial banks detect potential liquidity problems early, predict potential liquidity risk, send out warning signals in time when liquidity problems emerge. So the supervision department and commercial banks can take actions early, control and prevent liquidity risk effectively.