Liquidity Creation Of China Commerical Bank

According to the modern theory of financial intermediation, an important role of banks in the economy is to create liquidity. On the one hand liquidity creation provide liquidity to economic and society which affect the economics growth ,on the other hand liquidity creation cause bank accumulate a lot of risk, making bank vulnerable to runs.At present, research about bank focused on the role of risk transformation, there is in-depth research and analysis about liquidity creation, not to mention empirical analysis on China's commercial banks liquidity creation measurement , mainly because the data were too sketchy and incomplete, ,which makes the related policy research difficult. How much liquidity was created by China's bank? How are they changed over time, which bank created the most liquidity? Which factors influence the liquidity creation on a certain bank? These issues are worthy of our in-depth study. This paper studies the theory of bank liquidity creation mechanisms, there are two theories: Firstly, Depositors'immediate needs will inevitably bring about differences in duration of assets and liabilities of intermediaries ,commercial banks thus have played a role in duration transformation, thereby creating liquidity. Secondly Information asymmetry created adverse selection problems, require a return premium to compensate for the risk, which makes the bank's assets very fragile, it is fragility capital structure commits banks to creating liquidity . This paper use the two mainly using way to measure the level of liquidity of banks in China. Through analysis we can see that there were few changes in China's bank liquidity creation, interest rates and GDP are the two mainly macro-factors influenced bank'liquidity creation, and the impact on big size bank is more significant; from micro angle, assets and equity influence bank'liquidity creation most , so liquidity creation mainly determined by the scale of the a certain bank. Finally we give some policy recommendations on bank liquidity management from our analysis.