Study On The Liquidity Assistance Of Central Bank On Commercial Bank In China

From the objective existence of devastating financial crisis, the bailout of thefinancial crisis became an inevitable issue. From the role of commercial banks in thefinancial crisis and the importance of the liquidity assistance by central bank in therescue of the financial crisis, the central bank’s liquidity assistance on commercialbanks became a key part of the financial crisis bailout. Modern financial systemconstitutes a huge network of debt, if the individual more closely linked with thefinancial systems of the bank closed down due to the loss of liquidity or bankruptcy, itis likely to lead to a "domino" effect, so that the instability will rapidly spread to otherfinancial institutions and it may lead to systemic risk. To solve the problemfundamentally, the central bank should provide liquidity assistance at the beginning ofthe crisis to commercial banks that meet some certain standards to prevent further lossand contagion.In this paper, the mobility aid is defined as the central bank should provideliquidity assistance and infusion to commercial banks when commercial banks appeartemporarily illiquid, difficult to promptly resolve the funding gap in supply anddemand through market financing and may lead to systemic risk. On a qualitativelevel, this article cards the practical overview of the historical development of theChina’s central bank’s liquidity assistance on commercial banks, analyze the problemof high central bank bailout costs and the issue of the liquidity assistance functionsabused. Its essence is due to our evaluation criteria of liquidity assistance oncommercial banks is not clear. Therefore, on a quantitative level, the paper constructsthe index system from two dimensions——importance and liquidity,and uses theentropy method to estimate the weights, so that evaluation criteria of liquidityassistance on commercial banks is designed. On this basis, in accordance with theevaluation criteria, the paper assesses the16listed commercial banks, and theempirical results show that t evaluation criteria this article designed is valid andfeasible to some extent. Finally, this paper put forward suggestions from two aspectsthat are respectively optimizing the liquidity assistance mechanisms and improvingthe supporting systems of liquidity assistance to optimize China’s central bank’sliquidity assistance on commercial banks.