Asset-Liability Structure Adjustment And Liquidity Creation Of Commercial Banks Under Economic Uncertainty

For a long time, M2 or total credit are taken as measures of liquidity of the economy by scholars and media, and on which to analyze the asynchronized phenomenon between the growth of liquidity and economy. According to the theory of "credit traps", liquidity, which is directly related to the economy increase, is the liquidity created by bank system. The "monetary shortage" among inter-bank market in June,2013, exposed the maturity mismatch problems of assets and debts of banks, and at the same time, set a challenge for risk management level of banks. Also, maturity mismatch problems are closed related to the level of liquidity creation.According to modern theory of financial intermediary, the basic function of commercial banks is to create liquidity and transfer risk. A lot of literatures have already make great contributions to the topic of risk transference, but researches on liquidity creation are still limited, and most literatures focus on the influence of banks themselves, but not the economy uncertainty, to the liquidity creation. As the openness of the capital account and the liberalization of the interest rate, the uncertainty of economy outside banks is gradually increasing, so it is meaningful for us to study the influence of economy shock on banks.According to the theory of liquidity creation, when banks change one unit non-current asset to one unit current debt, they create one unit liquidity. This paper defines and measures the liquidity creation of banks using Berger and Bouwman(2009), and re-explain the meaning. From the macro level, liquidity creation of banks could be used to measure the extra liquidity which banks provide to the market as credit intermediary, and from the micro level, the change of liquidity created by asset per unit could indicate the amount of variation of the banks’maturity structure. From the perspective of economic logic, when the level of economy uncertainty go up, banks would be faced up to greater credit risk and interest risk, and banks would spontaneously adjust their structure of assets and liabilities, and shrink the liquidity they provide to the outside. However, as the deterioration of maturity mismatch, liquidity risks would be increasing. On condition that economy uncertainty increases, banks would quickly transfer their long-term loans to short-term debts, and would borrow more money from interbank market. In this loop, the real economy would be more harsh and monetary shortage would be more tense.Using unbalanced data of 2004-2012 of 109 banks, this paper measures the amount of liquidity they created, and make empirical test for the relationship between the structure of assets and liabilities, the capability of liquidity creation, and the macroeconomy uncertainty. The results demonstrate the theoretic analysis above, that the increase of uncertainly of economy growth or interests fluctuation will spur the banks to spontaneously adjust the structure of their assets and liabilities, and finally give rise to the shrink of liquidity creation.