The Impact Of Interbank Liabilities Of Small And Medium-sized Commercial Banks On Liquidity Risk In China

In the financial market,commercial banks play the important role of both demanders and suppliers of funds.They provide channels of funding for actual users and supporters of funds through taking deposits and issuing loans.In this process,commercial banks obtain income and achieve the profitability goals taking advantage of net interest margins.Subsequently,non-bank financial institutions have sprung up with the development of financial markets,and more diversified and higher-return wealth investment products have emerged,and residents have shifted funds originally deposited in bank accounts for fixed interest to purchase wealth investment products.And changes in the flow of funds have greatly limited the intermediary role played by commercial banks,and the trend of financial disintermediation has grown.In June 2012,in order to promote the reform process of interest rate marketization,the floating space of deposit interest rate was set at 10% higher than the benchmark interest rate.The final cost of using funds is affected by the supply and demand of funds in the market.As a result,banks lost the right to decide on interest rates,and net interest margin of commercial banks declined,from 2.77% in the 3rd quarter,2012 to 2.08% in the 4th quarter,2021.It can be seen that the general trend of financial disintermediation and market-oriented reform of interest rates play roles in the financial market.The net interest margin space of commercial banks has shrunk,and the level of liquidity and profitability has been restricted.They have to find new channels to get the funds to support their operations.Among the many channels,the interbank liability business has a strong initiative,compared with other sources of funds,which has the advantages of larger scale,lower cost and lower capital occupation.However,its original liquidity adjustment function has been gradually diminished as its size grows,becoming a dependent financial tool for banks to expand the scale of funds,increase financial leverage,and generate profits.At the same time,the large-scale funds obtained through interbank liability business have played an incentive role in commercial banks to make long-term and high-risk investments,resulting in a serious term mismatch issue.The particularity of interbank liability participants strengthens the links between financial institutions and provides more possibilities for the transmission of liquidity risk.The expansion of interbank liability business has an intense negative effect on the liquidity of commercial banks,which is especially obvious to non-large commercial banks.Contrast with large state-owned banks,others don’t have the characteristics of "too big to fail",and their financing ability,asset realization ability and capital ability to make up for risk are relatively poor,so they have a high degree of dependence on interbank liabilities and insufficient ability to cope with liquidity risk.Chinese government regulatory departments attach great importance to this issue,especially after the "money shortage" incident in 2013.They issued the Notice on Regulating the Interbank Business of Financial Institutions(Circular No.127),carried out a series of transformational governance work,and even clearly characterized major breaches of interbank business as case risk events in the Measures for the Administration of Criminal-related Cases of Banking and Insurance Institutions(Trial Implementation).Under the background of comprehensive tightening of supervision,the growth rate of interbank liabilities of commercial banks has gradually slowed down,and since 2017,negative growth was achieved in some years.However,incidents such as the takeover of Baoshang Bank Limited by The People’s Bank of China show that there are still huge liquidity risk lurking under the current level of interbank liabilities.It is necessary to clarify the impact of small and medium-sized interbank liabilities on liquidity risk.This paper combs through and summarizes the results of achievements of scholars at home and abroad on the topic of bank liquidity levels subject to interbank business,then supplements the existing research in combination with China’s economic background,trates small and medium-sized commercial banks as the research samples,and focuses on whether the interbank liability business surpress liquidity levels or not.Then,this paper illustrates the definitions and related theories of liquidity risk and interbank liability,and sorts out and analyzes their development and current situation.On this basis,this paper clarifies how the interbank liability of these banks influences on liquidity risk from a theoretical point of view,puts forward hypotheses according to specific impact mechanisms,and proves the correctness of theoretical assumptions through carrying out empirical analysis on the data obtained.This paper selects the data of 148 non-large commercial banks from 2012 to 2020 as the initial sample,retains the non-equilibrium panel data of 119 small and mediumsized commercial banks as an empirical research sample after excluding some banks with serious data loss.In this article,the impact of the scale,category and constitution on the liquidity risk is analyzed by means of fixed effect model,and the differences in the effects of banks with different attributes are considered.The following conclusions are reached: Firstly,on the whole,more interbank liabilities,higher liquidity risk.Secondly,enlarging of the scale of traditional and innovative interbank liability business will lead to the overall liquidity risk of non-large commercial banks to rise;and the interbank liability structure can have an important impact: the larger the ratio of the scale of innovative interbank liabilities to traditional interbank liabilities,the higher liquidity risk.Thirdly,the impact of the scale and constitution of interbank liability on liquidity risk varies according to the characteristics of banks.The expansion of the scale of traditional interbank liabilities of joint-stock commercial banks increases the pressure of term mismatch and increases liquidity risk,while the new interbank liability financing tools will not.Rural commercial banks mainly regard traditional interbank liability funds as temporary capital turnover tools,which do not increase liquidity pressure,and innovative interbank liability tools increase risk to a certain extent.City commercial banks are in between them,and the enlarging of the scale of traditional and innovative interbank liabilities can cause liquidity risk.The ratio of new to traditional interbank liabilities has a significant negative feedback effect on the liquidity level of urban commercial banks.Finally,summarizing the conclusions of the full text of the study,from the perspective of internal control and external supervision,we will put forward opinions and suggestions on individual banks,self-regulatory organizations and regulatory agencies.Individual banks should strengthen internal control,keep the scale of interbank liabilities reasonable,monitor the use of funds,and carry out financial innovation to adjust the composition of interbank liabilities appropriately.Self-regulatory organizations give full play to their active role and improve self-discipline and self-examination mechanisms.Regulatory authorities implement a dynamic and differentiated regulatory system,refine specific regulatory indicators,and formulate policies to promote commercial banks to obtain the required funds through multiple channels and means.