Discussion On The "Money Shortage" Of Banking In The Market With Ample Liquidity

In June and December of2013, a rare outbreak of inter-bank Chinese "money shortage"event appeared, the interbank market is in a serious shortage of liquidity. Overnight interestrates soared high overnight which became the focus of attention of the financial sector ingeneral."Money shortage" is not a lack of money but a lack of supply for demand of funds,resulting in a temporary liquidity crisis. To the opposite of “Money shortage”,the monetaryaggregates are abundant in financial market,which are mutually contradictory.Thisunexpected liquidity crisis came fast and violently,which is a ssurprise to commercialbanks.This situation is unique under Chinese economic structure,so that it can be calledChinese-style “money shortage”.Chinese-style "money shortage" as a new phenomenon,which caused the banking crisis vividly presents the China Banking immediate financialdifficulties, highlighting the necessity and urgency of liquidity risk management and bankingreform.The basic principle in commercial banks is profitability,liquidity and security,three areindispensable.This principle vividly refects the importance of liquidity management in thebanking business in the process.The liquidity management is so important because theconsequences of the liquidity risk posed is quite grim.US subprime mortgage crisis in2008and the European debt crisis in2011, the problem of shortage of funds commercial banksnever left public view.As the main constituent of financial sector,banks are easily in troubleswhen coming a liquidity crisis.This devastating for commercial banks is tremendous.The so-called "money shortage" is due to the relative lack of money in the circulationtriggered a financial crisis. In June and December,the banking system occurred “moneyshortage”,the overnight lending rate are so high that borrowing money difficultly. However,macroeconomic data showed China’s current financial markets do not really lack the money.Whether from last year’s social or monetary increment financing, the supply of money andcredit are not too low. Description market funds are sufficient, in theory, banks should not beshort of money. In the context of the huge supply of money,"money shortage" occurredappears to be a paradox, in essence, the inevitable result of underlying structural imbalancesin the banking system and under the combined effect of external shocks.With the develoment of interest rate liberalization,financial disintermediation,shadow banks and other new things,itmakes commercial banks face a huge challenge. Many banks’ debt sources are short-term,while asset business are investing in real estate and local financing platform with low liquidity,which formed a serious asset liability maturity mismatch, once there is an external force, suchas the slowdown of national economic, the outflow of the international hot money, the bankwould occur temporarily even periodic "money shortage".Commercial banks are playing the role as an intermediary in the process of financialintermediation,subtle changes in the economy will affect the liquidity of banks.When theliquidity of commercial banks are less severly,it would seriously affect the financial system asa whole macroeconomic."money shortage" is actually a form of expression of bank liquidityrisk.In our country,commercial banks always paid attentain to market risk,credit risk and otherexternal risk,while ignoring the importance of liquidity risk management.Once commercialbanks always neglected liquidity management and relied on central bank’s rescue in the keymoment.Before the market interest rate has not yet fully formed,the central bank is always ina passive state."Money shortage" explored the financial difficulties in China Bankingcurrently, reflecting the necessity and urgency of strengthening liquidity risk management.In this paper,with the deeply analysis of the “money shortage”,inclding its form,scope,then obtained the preliminary substantial.Through the qualitative analysis of the influencingfactors in “money shortage”,drawing the internal and external factors.Through analysis on thegame between central bank and commercial bankes,concluding the purpose and significanceof the central bank.Finally, based on the above analysis, putting forward suggestiongs toprevent a liquidity crisis happening again.So the research of “money shortage” will havepractical significance for promoting the reform of bank industry and even the entire financialindustry.