The Study On The Scales And Determinants Of Chinese Commercial Bank Liquidity Creation

Bank based on their credit to acquire liquid funds, and then used to invest illiquid assets. It can create liquidity for the economy. This liquidity transformation could be defined as the bank’s liquidity creation function. We will be based on this topic to further investigation. First, we study on the long-term effect of the economic growth rate, monetary policy and the development level of financial markets on the scales of Chinese banks’ liquidity creation. And we perform “Cointegration Test” in a multiple linear time-series estimator framework on an exhaustive data set of Chinese banks. We observe that the development of capital markets positively influence the scales in long time. Then, we examine the relation between capital ratio and the scales which based on the data of 28 banks and system of equations estimator. We find very different results for different kinds of commercial banks. For state-owned commercial bank, it has no effect between capital ratio and the scales of bank liquidity creation. For national commercial banks, capital ratio has a positive on the scales and the effect of the scales on capital is weak positive. For city commercial banks and rural commercial banks, capital ratio has a strongly positive on the scale of liquidity creation and the effect of the scales on capital ratio is weak negative. Finally, developing China’s capital market and strengthen the supervision of liquidity risk in regional commercial banks are made based on research findings.