Analysis Of The Liquidity Position Of The Banking System

One principle of sound operation of the financial system is to maintain a certain level of liquidity; lacking or excess liquidity would both bring about economic crisis, and the liquidity of banking system is the core of the financial system. Since the end of 2006 to 2007, excess liquidity has become the hot issues. In order to control the banking system's liquidity surplus, the People's Bank of China has raised the statutory deposit reserves ratio for 10 times in 2007. On the basis of analyzing the banking system liquidity situation, this paper discussed the reasons of the current excess liquidity in banking system and proposed the relevant recommendations.From the supply and demand of liquidity in the banking system, this article discussed the impacting factors both of them. Also we concluded that the reasons that arouse the excess liquidity is that the excess liquidity supply. At the same time, we concluded that the excess liquidity supply is due to the long-term high saving rate, medium-term imbalance between international income and expenditure, short-term rapid rising asset price. To resolve the excess liquidity, we should reform the current exchange rate system, reducing the expectation of appreciation of RMB; improve capital market regulation to prevent the emergence of asset price bubbles; establish the long-term effective mechanism of easing liquidity surplus, improving the social security system to enhance the demand of consumption.