The Lack Of Bank Liquidity And Impacts On Economics

Since the 21st century, with the booming real estate industry and drastic fluctuations in capital market, the liquidity change has caught people's attention gradually. Over the financial crisis, the stunning liquidity transformation brings about catastrophic impact on economy. As the liquidity decreases, the stock market suffered first, the Shanghai composition index dived from 6124 to 2000 points and reached the bottom 1664.93. Meanwhile, after the rocketing growth of economy, the real estate market met the turn point in 2008, since 2000, the house market sales index was below 100 for the first time, no matter the stock market or the house market, the dramatic price change was related to the liquidity transformation.This paper starts with the banking liquidity, illustrated the study purpose and significance. Under the circumstance of financial shock, it's urgent to study the liquidity in banks and its impacts, and then this paper summarized the domestic and foreign literature to introduce the study methodology, approaches and contents.Chapter 2 introduced the concept of liquidity first. On this basis, this paper illustrates the significance and definition of banking liquidity, and offers nine measuring ratios like liquidity gap, core deposit/total assets ratio, total loan/total assets, liquidity ratio, deposit/loan ratio, interest spread, volatile liability/total assets, cash/total assets, security market price/buying cost ratio, deposit structure ratio.In chapter 3, loan/total assets, cash ratio and deposit/loan ratio are used to explore the banking liquidity since 2003, also in the recent 2 years, the reasons of liquidity transformation is discussed, including the ante-crisis moderate tight monetary policy, the direct impact of financial crisis and foreign investments inverse flow.Chapter 4 analyzes the impacts on economy brought by descending banking liquidity from four perspectives, first, great emphasis is put on the stock market under the shortage of liquidity, in this part, the performance of stock index between 2008-2009 is shown and then the VAR model as well as co-integration model are structured to study the trend. VAR model indicates that banking liquidity can explain the performance of stock market to some extent, they are positively correlated, on the other side, the co-integration test shows that they lack long-term stable relationship, at the same time, the interbank trade volume was going down which affected the adjustment capability of banking liquidity. Besides, the decrease of liquidity reduced the growth of loans that acquired from banks, the issuing speed of individual house loans was descending, and the exploit rate was also dropping, the growth house price was slowed down, which brings about risks to real estate companies. In addition, the decreasing liquidity increased the difficulty of finance majorly to SMEs, large companies can still have the liquidity with high debt-paying ability.Chapter 5 gives the forecast of liquidity development in China and the policies are also formulated to relevant government department and banking system.