An Empirical Investigation On Relation Between The Characteristics Of China’s Commercial Banks And Monetary Policy Transmission

China’s economy and society have attained outstanding achievement since1978when China adopted reform and opening up policy. The construction of socialist market economic system is gradually stepping into deep profundal zone. With the establishment of socialist market economic system, the macro-control efforts are playing a very important role in the stable and quick development of China’s economy. The macro-control of modern market economic mainly contains fiscal policy and monetary policy. For keeping economy continuously growing and conducting the macro-control fiscal policy plays an irreplaceable role. Through issuing national debt and adjusting tax level, fiscal policy finished the macro-control tasks. Particularly since1990s,both domestic economy and international economy are complex, the surge of domestic economy and the recession of major economies in the world affected China’s economy simultaneously, how to make fiscal policy and monetary policy better coordinate with each other is well worth further research. Since1980s, the reform of China’ economy system has gotten a lot of improvement, the rebuild of modern bank system and monetary market provide advantages for monetary policy to function as a way of the macro-control and strengthen the status of monetary policy in the macro-control. With the globalization of economy and the complexity of international economy, the trend of domestic economy is becoming more and more unpredictable. How to make monetary policy more effective and useful is a very valuable topic. Throughout China’s characteristic economy system, direct financing accounts for a small portion of total financing amount. The lending of commercial banks, which affects money supply vey much, is the main object that the central bank wants to adjust. Many factors pose influence to the effects of monetary policy, China’s monetary policy is conducted by People’s Bank of China and passed through commercial banks, the inner conditions of commercial banks may exert a certain influence to the relations between commercial banks and monetary policy, we are in dire need of the research of the commercial banks’ characteristics and monetary policy.Both Chinese and foreign scholars have investigated into this topic. Western scholars researched how the commercial banks of United States, England, Japan, South America and EU members react to the monetary policy. Their conclusions varied mainly because of the different methods they employed and the different national conditions. Most previous domestic scholars approach this problem through macro-data. As the advantages of foreign research methods loom large and central bank need more practical knowledge to conduct monetary policy, more and more domestic scholars employ VAR and panel data to investigate by using balance sheet and income sheet data. They drew some useful conclusions and made suggestions accordingly. In this paper, based on some previous methods, some new method, like sample selection, empirical models and so on, are employed in order to do further research precisely and broadly.China’s commercial banks can be divided into several sorts, including: state-owned banks, joint-stock banks, city commercial banks, rural commercial banks, foreign banks and cooperatives, because of China’s characteristic socialism market economy. They may react differently to monetary policy due to different levels of corporate governance, business domain. In this paper, we firstly derive a theoretical conclusion between bank liquidity and monetary policy and then use38banks’ data to investigate into how banks’liquidity, size and profitability affect the effects of monetary policy by using panel data. Deposit interest rate, loan interest rate, required reserve rate, interest rate paid on required reserve, discount rate are used as variables of monetary policy, these rates are time-weighed so as to reflect the true average level in one year. These data are available in China’finance yearbook, which is edited by PBC, and Bankscope database. This paper blazes new trails by sampling city commercial banks into empirical research in order to fully research this matter. Nowadays, city commercial banks have become an important part of China’s bank system, their reaction to monetary policy directly influence the effects of monetary policy. Due to the lack of some data, unbalanced panel data is used.According to the empirical study, we found the following conclusions:bigger banks react less sensitively to tightening monetary policy; tightening monetary policy affects liquid bank more; both joint stock banks and city commercial banks react more sensitively to tightening monetary policy than state-owned banks; the relation between bank profitability and monetary policy is ambiguous and worth further investigation.We can provide suggestions to practical economy and the development of human society though empirical research. In chapter5, policy suggestions are made accordingly. Firstly, we should control the size of banks reasonably, the overwhelmingly large size, high concentration degree of bank market and monopoly make our economy far from mature market economy and bring financial risks. Secondly, we should tighten liquidity regulation to reach a perfect balance between improving the effectiveness of monetary policy and preventing the excess of liquidity; Thirdly, open market operation should be improved to be a valued replacement of other monetary policy tools. Fourthly, banking regulatory authority should pay close attention to the micro-conduct, particularly the financing in the capital market, not only the balance sheet of banks, and cooperate with Securities Regulatory Commission to instruct banks; Fifthly, further push interest rate marketization; Sixth, perfect society credit system, banks should establish complete personal and enterprise’s credit record; Seventh, perfect the directional bill issuing system.Restricted by data availability and my limited ability, this paper got some points to be improved. We can employ non-performing loans rate as a variable in the model; More city commercial banks, rural commercial banks and foreign banks should be samples of our empirical research; RAROC should be used as an indicator of bank profitability; The relation of bank size, profitability and monetary policy should be derived. Follow-up research can be carried out through the above aspects and new ideas. The research about this topic will step forwards substantially with the upgrade of scholars’knowledge and database availability.