How Does Liquidity Regulation Affect Bank Risk-taking

Previous regulatory policies focused more on bank capital supervision.Until the occurrence of the subprime mortgage crisis in 2008,which brought huge losses to global finance,bank liquidity risks were gradually exposed.It is of great significance to discuss the effects and optimization problems of banking liquidity supervision policies affecting bank risktaking.This article first builds a theoretical model to analyze the mechanism by which liquidity regulation affects bank risk-taking,theoretical analysis finds that the impact of liquidity regulatory requirements on the bank risktaking depends on its net effect of risk effects,asset-side and liability-side conduction effects.Then use the regression discontinuity design to test the impact of liquidity supervision on the risk-taking of 54 commercial banks in China from 2007 to 2015.The results show that there is a significant negative correlation between liquidity regulation and bank risk-taking,that is,the increase in liquidity regulatory requirements has significantly reduced the level of bank risk-taking.Further analysis found that ROA has a significant negative correlation with liquidity regulation,which means that liquidity regulation will significantly reduce the profitability of bank unit assets.But the impact on debt financing costs is not significant,indicating that liquidity regulation mainly affects the bank risk-taking level through the asset side rather than the liability side,and the negative effect of risk is greater than the positive effect on the asset side.Finally,it puts forward suggestions to the regulatory authorities and banks.