Study On The Liquidity Risk Management Of Internationally Large Banks

Liquidity risk is a comprehensive risk inherent in banks.The internationally financial crisis since 2008 fully showed the immediate and sustained disastrous consequences caused by the liquidity shortage in the international banking industry.The crisis made the liquidity risk management of banks the focus of global regulators and financial industry,especially the cross-border large banks which play the key role in cross-border liquidity crisis transmission due to the complexity and correlation of their liquidity risk management.Since then,the research on how to effectively manage and regulate the liquidity risk of internationally large banks has become a hot topic in international academia.It should be acknowledged that strict regulation is the external line of defense to prevent severe liquidity crisis.In terms of internationally largebanks,to establish a robust liquidity risk management mechanism,which matches cross-border operations with international regulations,shall be the core base for sound and sustainable development.In recent years,Chinese Banks have been accelerating in internationalization,but the liquidity risk management remained mainly based on home country operation requirements,which is less sufficient to ensure the liquidity safety of cross-border operation.Meanwhile,domestic researches on bank liquidity risk management remain concentrate on Chinese listed banks,short on large international banks based on global vision and international regulatory trends.For this reason,this paper takes the large international banks as the research object to establish a dynamic "six-step ladder method" group liquidity risk management framework model.Thus,the paper contributes to enriching the domestic research on bank liquidity risk management.This paper combines the theoretical analysis with empirical analysis.In the theoretical analysis,a general equilibrium model regarding interbank market is established,and in empirical analysis,the paper utilizes panel regression model,factor analysis,etc.The full text is divided into eight chapters.Chapter 1 is a summary of the article,mainly including research background,research object,research significance,research method,research methodology and structure and main innovation points.Chapter 2 reviews domestic and international literatures on bank liquidity risk management,extracting contributions and the shortcomings of existing research,which provides an essential theoretical and technical basis for the paper.Chapter 3 elaborates on the mechanism of bank liquidity risk generation,discussing the formation mechanism of bank liquidity risk from the endogenous root of bank liquidity risk,transformation from other risks to liquidity risk,liquidity risk of interbank lending channels and exogenous asset prices channel respectively.In combination with the importance of the interbank market for international banking liquidity management,this chapter innovatively constructs a general equilibrium model to explain exogenous liquidity risk from the perspective of the interbank lending.The paper analyzes that the existence of interbank lending can enhance the ability of banks to deal with unpredictable liquidity demand volatility in the absence of default.Once a bank defaults,the ability to cope with the liquidity risk will worsen and weaker than the situation without default.However,whether it is worsen or not than no lending to banking liquidity risk,depends on the central bank's rescue attitude.Another important conclusion is that the more liquidity assets the banks reserve initially,the higher the value of market utility function will be,which provides a theoretical basis for regulators to require banks to hold more HQLAs.Chapter 4 comprehensively analyzes the characteristics and status quo of liquidity risk management of large international banks.First,the article analyzes the features of internationally largebanks' liquidity management from the aspects of the management pattern,the time dimension and the internal and external market.Then a liquidity risk measurement metric system for large banks is established.Furthermore,the paper evaluates the status quo of liquidity risks of systemically important banks by utilizing factor analysis,which reveals that the banks with higher customer deposits proportion,capital adequacy ratio,capital profit margins and stronger retail business face lower probability of liquidity risk.Chapter 5 focuses on the latest requirements of international liquidity risk regulation and the influence on bank asset allocation behaviour.A panel regression method is applied here to test the influence of new LCR indicator on the asset holding behaviours of internationally largebanks,with the sample of the Banks with tier 1 capital more than $10 billion on the TOP 1000 list provided by THE BANKER in 2016.The empirical results support that the increasing regulatory requirements of LCR facilitated large international banks to hold more liquidity buffer.The opportunity cost,international market liquidity condition,growth rate of the mother country and the development extent of the financial market of the home country have negative impact on the proportion of the liquidity buffer held by banks.The bigger the bank,the more the liquidity buffer it holds.Chapter 6 focuses on the core role of risk prediction in implementing dynamic liquidity risk management.This paper analyzes commercial bank cash flow forecast,liquidity risk stress test and intra-day liquidity risk management.In general,the stress test based on cash flow prediction has been regarded as the mainstream mode of preventing extreme liquidity risk by international banking industry and regulators.Chapter 7 constructs a six-step ladder method group liquidity risk management framework,which is matched with the international business operation based on previous research results.The six steps are as follows: identification of liquidity risk,setting liquidity risk appetite,establishing the risk governance structure and senior level policy,establishing the quantitative index system of liquidity risk measurement and monitoring,implementation of stress test and contingency funding plan,formulating risk reports and management of information reporting and disclosure.Chapter 8 provides suggestions for Chinese banks to improve the liquidity risk management system to meet the requirement of sustainable internationalization,including paying high attention to global liquidity risk,matching liquidity risk management system with internationalization strategy,utilizing regulatory indicators in liquidity risk management effectively,establishing assets and liabilities portfolio optimization management system,etc.