Analysis On The Liquidity Of Commercial Bank In China

Bank is the core of finance sector which is the core of the economy. Therefore bank's operation has been the focus of government and scholars. Among the basic three requirements of bank .operation, liquidity, the ability to keep usable capital at proper price availible to meet the demand of withdraw and payment, ranks first, because it is the precondition of smooth bank operation and the guarantee of bank capital security. Liquidity crisis in one commercial bank may turn into a financial crisis across the country. Therefore, the requirement of liquidity not only relates to the bank's security and the effect of monetary policy, but also relates to the financial system as a whole.In the years before the end of 1990s, deficiency of liquidity had been the major problem in China's banks due to credit inflation and bad credit quality under the planning system. At that time, banks merely cared about how to attract more deposit to increase credit. However, in the new century, liquidity turns to be too excessive to be negative for the implement of monetary policy and the stable operation of financial system.. Some economists even call it "liquidity trap" with quite low probability.Under the condition above, the paper discusses first the role of commercial banks in the system of monetary supply in the theory; then with theory and practice combined, the paper analysis China's excess liquidity using data of the gap between deposit and withdraw and excess deposit reserve as well; in Chapter Second, threat and cost of excess liquidity is discussed in terms of commercial bank's operation, monetary policy and the economy as a whole; in the Chapter three, the author analysis the causes of excess liquidity, from the angles of macro-economy and bank operation, and finds out that the effecting factors cannot be excluded in the short run; finally, the paper concludes with relevant suggestion in both short and long run.