A Study On How Bank Competition Influences Liquidity Creation

At present, the commercial Banks’liquidity management has become an important topic to research for the regulatory authorities and the Banks themselves. From the global financial crisis and the outbreak of a liquidity crisis in many financial institutions in the developed countries, to the introduction of Basel new regulatory liquidity index, and in June 2013 China banking "money shortage" events, all is a wake-up call for our country banking liquidity management. Along with our country interest rate marketization progress of and the deepening of financial reform, big changes have taken place in banking market competition pattern.How competition influences the liquidity creation of commercial banks is worth of our in-depth study.By Berger and Bouwman’s liquidity creation measure in 2009, we use 68 of our country commercial banks from 2006 to 2014 to scientific measure liquidity creation according to the actual situation in our country. Our study found:(1) our country commercial bank liquidity create volatility rises year by year, each asset liquidity creation level dropped year by year;(2) different types of commercial bank liquidity creation growth differently, competition and growth will be affected by bank of its own factors. Also used beyond the logistic cost function, this paper calculates the marginal cost of these Banks and Lerner index, and found that our country commercial bank market power on the whole changes after rising to decline.After effectively measured Banks’liquidity creation, this article takes Lerner index as proxy variable of the commercial bank competition, and then use GMM dynamic panel data model to analysis 68 Banks’s data of 2006-2014, empirically analysised the influence of commercial bank competition on liquidity creation. The study found that the strengthening of competition level will reduce the liquidity creation of commercial Banks. Further, according to the asset scale and the traditional classification method, the sample Banks are divided into two categories, respectively, to study the effect of competition on liquidity creation, results show that the competition of two classes of the liquidity of commercial Banks create effects were significant. The results confirmed that the "financial fragility-out" hypothesis proposed in this paper, the strengthening of the commercial bank market competition increased the financial fragility, leading to bank at the same time reduce the deposit and lending practices. Carry out from the regulatory perspective, policies to strengthen the banking market competition can effectively reduce the supply of liquidity of commercial Banks, and vice versa.