The Study Of China’s Small And Medium Commercial Banks’ Liquidity Management

Liquidity is the lifeblood of the commercial banks and the basis and prerequisite of profitability and security. The People’s Bank of China has increased the statutory deposit reserve ratio12times to curb inflation. The liquidity pressure of some small and medium banks raised a lot,in order to meet the requirements of regulatory system and increase profitability some of them got deposit by offering higher interest,which will lead to virulent competition. The regulatory authorities and banks have to take actions to improve the management of liquidity for the sake of fairness and the good order of financial markets. The small and medium-sized commercial banks should strengthen their internal liquidity management to better the quality of their assets and liabilities,thus avoiding liquidity risk.This paper will describe the liquidity management of China’s small and medium commercial banks from five parts. The first part is the theoretical and practical meaning of the study and the summary of some scholar’s researchment. The second part is the introduction of some concepts about liquidity risk and the development of the liquidity management strategies. The third part describes the deficiency of small and medium-sized commercial bank’s liquidity management and analyses the reasons that cause liquidity risks. In the internal control aspect, there are four reasons, the first reason is the imbalance of assets and liabilities’term structure. The second is the paradox among liquidity,safey and profitability. The third originates from deficient management of other risks. The last one is the narrow range of small and medium banks’business. In the external aspect,the liquidity risk originates from the tight monetary policy and underdeveloped financial market, which leads to narrow financing channel. The forth part introduces the America and Germany model in liquidity risk control and the enlightenment on improvement of our country’s liquidity management. In America,banks in different type and kind are supervised by different rules. Germany introduced a series of laws and regulations to standardize the bank’s asset and liability management, thus maintaining a good level of liquidity. Both the two countries focus on dynamic indicators in controlling and measuring liquidity risks. The fifth section presents some suggestions to improve the level of China’s small and medium commercial banks ’liquidity risk management. The paper believes it can be improved by the following measures:First of all, small and medium-sized commercial banks should identify their own market position to accelerate the strategic transformation and find a distinctive business service road. Under the premise of accurate market positioning, small and medium banks can increase the types of assets by reducing the proportion of loans, increasing the proportion of investments in securities, carrying out finance leases as well as increasing the middle-balance sheet business assets. Second,they should increase the long-term sources of funds through issuing medium and long-term financial bonds and absorbing residents’ regular savings. Third, they should participate in the currency market to broaden financing channels. Besides, The regulatory authorities can learn from the developed countries’experience about commercial banks’liquidity risk management,change the unified regulatory requirements and design dynamic liquidity risk indicators as well as put securitization into action to broaden the financing channels.Finally, Small and medium-sized commercial banks should take advantage of advanced information technology to improve the means of liquidity management and establish a comprehensive and effective liquidity risk early warning system.