The Measurement Of Chinese Commercial Banks’ Liquidity Creation And Its Influential Factors Analysis

According to the modern financial intermediary theory, the reason of the existence ofcommercial banks is due to two crucial functions: creation of liquidity and risk transfer. A vastliterature has emerged on bank risk taking, regulators with prudential regulation, supervision andcontrol of bank risk taking behavior. Only a few foreign scholars concerned about commercial banks ’liquidity creation functions. This paper analyzes the trend of liquidity creation and the factors affect it.On the basis of conclusion, we give the corresponding policy suggestions to commercial bank andregulator.Firstly, we introduce the theory of financial intermediation which is related to the commercialbank liquidity creation: asset conversion function and risk transfer function. We give the mechanismof liquidity creation on the basis of Diamond–Dybvig’s principal-agent theory and defined theliquidity index in this research after studying the traditional liquidity index.Secondly, we measure the commercial bank’s liquidity creation. In measuring the commercialbank’s liquidity creation, we divide the liquidity of commercial bank’s balance sheet and off-balancesheet projects, use the "cat-(non) fat" model to estimate the number of liquidity creation of overallcommercial banks and the individual commercial bank. By studying the liquidity creation trend, weconcluded that: first, different banks have a different level of liquidity creation; second, commercialbank which has the same categories also has a different number of liquidity creation,Thirdly, we analyze the influential factors of commercial bank liquidity creation, we firstlyanalyze the internal and external factors, and then we use panel data model to analyze the influentialfactors to the China163listed banks during the period2003to2010. We concluded that: first, there’sdifference in influence and direction of these factors for different banks; second, the sensitivity ofdifferent components of influence of different commercial banks is also different.Finally, based on the conclusions we arrived, we put forward some suggestions, which is positivefor the study of liquidity creation in both theoretical and practical use.