An Empirical Study On The Impact Of Interbank Borrowing On Liquidity Risk Of China 's Commercial Banks

Liquidity risk is the main risk in bankruptcy. After the financial crisis in2008, countries pay more attention to liquidity risk, so new regulatory measures and indicators were introduced to banks by Basel Ⅲ. Interbank lending provides an increasing amount of fund to banks. However, interbank lending changed the structure of banks’ assets and liabilities. How does interbank lending influence liquidity risk? The demonstration of this question will be discussed in this paper.This paper consists of5chapters. The theoretical part is chapter2and chapter3. In chapter2, theories about how interbank lending can affect bank liquidity risk is stated. There are three ways that can influence the liquidity risk. The first way is risk contagion. Banks connect with each other by debtor-creditor relationship which can make a related bank fall into risk. However, interbank lending within reasonable can make a profit and help the bank achieve a better liquidity risk management. Moreover, some short term liquidity demand can lead to liquidity risk. In chapter3, methods to measure liquidity risk are introduced; they are static index method, dynamic index method, stress test and principal component analysis. Principal component analysis can composite various index to make a more comprehensive result than a single index. There are two parts in the empirical analysis. The first empirical analysis focuses on measuring the level of liquidity risk using the principal component theory, and the result is being used in the second part for analyzing the relation between interbank lending and liquidity risk. The conclusion of this analysis is that city commercial banks have lower liquidity compare to other two kinds of banks, In the second part, a panel data model with data of22banks in6years is used for weighing the effect of interbank lending to liquidity risk. The conclusion is that interbank rate affects the liquidity risk significantly.The fifth chapter is based on the above analysis. Focusing on the empirical conclusions, suggestions are given for banks.