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China 's Commercial Banks' Liquidity Risk Management

Posted on:2005-01-24Degree:MasterType:Thesis
Country:ChinaCandidate:J TangFull Text:PDF
GTID:2206360122480614Subject:Finance
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It is a basic principle in commercial banks that profitability,safety and liquidity must be unified organically. Liquidity management is not only the important means to coordinate safety and profitability and to keep the payment risk away,but also the core in the commercial bank management. In the publication of the Basel committee, the definition of the liquidity risk is that the probability that banks cannot fund asset growth or meet obligations as they become due, that is, when there is liquidity shortage in a bank, the bank cannot increase liabilities or sell assets in a reasonable price. There are liquidity problems in both financial and non-financial institutions, but in comparison, the harm that liquidity risk does to the former is bigger than it does to the latter. In an extreme case, such liquidity problems can manifest themselves in runs, even on sound banks, when customers withdraw their deposits on a massive scale. Furthermore, an individual liquidity problem can quickly spread to the whole banking sector and the whole world, resulting in a real bank panic and economic crisis.It was pointed out in "commercial bank law" in 1995 that the commercial banks should regard profitability, safety and liquidity as business principles, implement independent management , take risks by themselves , assume sole responsibility for their profits and losses, and exercise self-discipline. In fact, the reform of commercial banks in China has not made commercial banks complete assume sole responsibility for its profits or losses, especially for the four major state-owned commercial banks, which control most financial resources, their ultimate owner is still the state. So when there is liquidity problem, commercial banks can impute it to the country easily, which makes commercial banks pay little attention to liquidity management. At present, liquidity management is a kind of management which supervision authority supervises commercial banks in terms of legal provisions, but not commercial banks manage their liquidity positions on their own initiative. Because of the weak self-consciousness of the commercial banks for liquidity management, banks may manifest themselves in runs when facing some special problems, which we can see many examples in these years. As economic and financial reform and opening to the outside world deepened, the factors influencing the management of commercial banks will change a lot. How to strengthen the liquidity management idea in commercial banks, and take precautions against liquidity crisis? How to use the experience in foreign commercial banks for reference to scheme out liquidity management model that suits financial institutions in China? This article focuses on the problems brought forward above.According to the extent of harm which liquidity risk does to financial system, we can divide liquidity risk into three kinds. The first kind is operational liquidity and the others are crisis liquidity. In this article, the focus is made on the first kind of liquidity risk. According to international and domestic research, there are a lot of works about risk management, but there are a few works about liquidity management, and there are a few works introducing the successful experience and practices and new techniques created in foreign liquidity risk management. This thesis begins with relative theories in economics, analyzes the reason by which different liquidity risk occur, introduces the international practice in liquidity management, and plays emphasis on the factors impeding the liquidity management of the commercial banks in China. At last, suggestions are put forward to strengthen and improve the liquidity management of commercial banks in China.The structure of this article is as follows. Chapter 1 introduces the economic theory about liquidity management. First, there are definitions of the liquidity and liquidity risk. The liquidity is the ability of credit institutions to fund increases in assets and meet obligations as they become due, and the l...
Keywords/Search Tags:commercial bank, liquidity, risk
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