Research On Small And Medium Sized Commercial Banks’ Liquidity Risk Management Of China

The risk management is a perennial subject in financial management of commercial banks. Compared with the non-financial enterprises, risks in commercial banks are more complicated, intangible, socially transmissional and profit-lagging.Meanwhile, the four principle risks for commercial banks in China are lying in the aspects of credit, interest rate, operation and, particularly in the liquidity-which attracts most attention from the financial world in recent years.As the inefficiency of the liquidity risk prevention appeared in the global financial supervision system has been exposed in global financial crisis in the year of2008, the "Basel Agreement Ⅲ"was issued and liquidity risk has received unprecedented attention as a universal financial problem. Afterwards, since Jan.1st,2013, the "Rules for Regulating the Capital Requirement of Commercial Banks"-which is regarded as the Chinese Basel Agreement Ⅲ-has been issued, the liquidity risk management for commercial banks in China is on the agenda. Besides, the facts that China’s financial reformation is gradually going deeper, The State Coucil’s ten notice in finance raise the project of private bank establishment, three periodic money shortages attacked in the last year, etc., are all demonstrating the necessity to develop the liquidity risk management of commercial banks in China. Furthermore, although the sign of liquidity for the overall domestic banking industry has not appeared, the liquidity risk management still has pressure resulted from the liquidity maldistribution, especially for the small and medium banks.According to the background above, this dissertation starts from the description for the features of the domestic banking industry and the establishment of the financial index alarming system for liquidity risk, then followed by the investigation of the liquidity risk management with the help of specific financial data and ends in the targeted countermeasure and suggestions in the sight of finance, which would contribute to prevent the liquidity risks more effectively for the small and medium commercial banks.Additionally, for the structure of this dissertation, there are6chapters. First comes the introduction, a section to introduce the background, objectives, research approaches, literature review and the self-assessment for this investigation. And in the following chapter-basic theories of the liquidity risks, it demonstrates the main concepts, the mechanism and hazard of liquidity risk, then the necessity and current specifications of the risk management. In the next chapter--the identification of liquidity risk for small and medium banks, it concludes the definition of the risk recognition, the methods to realize liquidity risk, the establishment of financial warning system and the significance of such a system. Hence, for the fourth chapter, concerning the measurement of the liquidity risk, the measurement of risk level, capacity and capability to withstand risks and the profitability are stated. In the following section, the solutions and preventions are demonstrated, including the description of the current problems in liquidity, and the specific strategies for the small and medium banks coping with such issues.Finally, for this dissertation, the key contribution is to provide a new perspective to investigate the liquidity risk for commercial banks, which is supported by the concept of technical disintermediation in the mechanism of liquidity risk, the measurement of financial data to analyze the risk based on the domestic banking characteristics, the references used from the advanced external risk management system and FED index when financial warning system established, and last but not least, the comprehensive evaluation for the risk level. Nevertheless, there are some limitations and shortages in this dissertation. Firstly, as the boundedness in the academic skills, the selection of data for liquidity risk evaluation is restricted to the static indicator of the quantitative index, this may lead to the inaccuracy in the result of liquidity risk measurement. Otherwise, owing to the lack of internal data for the calculation of LCR and the amendment of NSFR, the financial warning system established in this dissertation is not involved with these two indicators mentioned in "Basel Agreement III".