The Study On Impact Of Standing Lending Facility On Interbank Market Liquidity In China

Standing Lending Facility(SLF),as a normal liquidity supply channel in the central bank's monetary toolbox,has become increasingly important in price and quantity regulation since its establishment in 2013.In June 2013,there was a "money shortage" in the interbank monetary market.The central bank actively used SLF operation to ease liquidity tension and guide the interest rate of the interbank monetary market to decline.At the same time,the repo interest rate also breaks through the upper limit of the interest rate corridor,so the impact of SLF on interbank market liquidity deserves further study.In the past,literatures mainly focused on the effectiveness of SLF on monetary policy transmission.Now more attention is paid to the mechanism and effectiveness of SLF as the upper limit of interest rate corridor.However,there is a lack of the research of SLF on medium liquidity.This paper first reviews the practical effect of SLF and the existing problems of interbank market liquidity,and then deeply analyses the mechanism of SLF on interbank market liquidity.The interbank market liquidity is divided into general liquidity and partial liquidity.The validity of SLF is tested by using VAR as an empirical model.Firstly,there is seasonal shortage in the total amount of interbank market,which is consistent with the seasonal characteristics of SLF operation scale.This leads to the first problem to be tested in this paper: SLF may alleviate the month-end liquidity shortage in the interbank market as a whole.Secondly,the primary dealer system makes the inter-bank market liquidity stratified.Small and medium-sized banks and non-bank institutions may face the problem of partial liquidity shortage,but SLF is not limited to the primary dealer,which leads to the second problem: SLF may improve the local liquidity shortage of small and medium-sized banks or non-bank institutions.Before the establishment of VAR model,through the analysis of rolling correlation coefficient,it is found that the correlation between SLF net investment and 7-day monetary market interest rate of the same period and two lag periods are relatively high.From the overall time series of sample period,there is a lag negative correlation between SLF and DR007,which may be the lag of policy instruments or the blockage of liquidity transmission channels;however,with the passage of time,there is a lag negative correlation between SLF and DR007.In this period,the negative correlation between SLF and the lagging item DR007 gradually decreases,while the positive correlation between SLF and DR007 gradually increases,which may indicate that the sensitivity of SLF to current market interest rate increases gradually.According to the above two problems,the VAR model is constructed by Granger causality test,impulse response and variance decomposition.Aiming at the first problem,this paper constructs a VAR model including SLF,reverse repurchase and repo interest rate,and finds that SLF alleviates the overall liquidity shortage in the interbank market with timeliness.In the short run,SLF can effectively reduce the interest rate in the monetary market at the end of the month,but in the long run,the interest rate will rebound.Compared with reverse repurchase in open market operation,SLF has stronger and more lasting effect on monetary market interest rate,and contributes more to variance decomposition.To solve the second problem,we construct VAR model including SLF,OMO,spreads and other variables.First,reverse repurchase can not alleviate the problem of partial liquidity shortage,and will increase the repurchase spreads between banks and non-bank institutions in the sample period.Secondly,SLF has limited effect on alleviating the local liquidity shortage of non-bank institutions,but it can effectively alleviate the local liquidity shortage of banking institutions.Through the active development of SLF in the local People's Bank,it can provide liquidity for small and medium-sized banks in a timely manner.Overall,SLF can alleviate the overall liquidity shortage in the interbank market at the end of the month and provide partial liquidity support for commercial banks,but there are limitations of timeliness and effectiveness.According to the practical data of SLF in recent years,the main reasons are small scale,limited collateral and low frequency of information disclosure.In this regard,this paper proposes to improve the frequency of SLF information disclosure and publish the expiration information of SLF in different periods;local banks should improve the information quality of collateral;branches of the People's Bank of China should strengthen the guidance of liquidity management.