The Analysis Of The Moderating Effects That The Deposit Reserve Rate Have On Commercial Bank Liquidity

In June of2013, there was the occurrence of liquidity squeeze in Chinesecommercial banks. And the overnight lending rate reached histrionic heights of6.43%among banks. Money shortage event showed that there were great dangers anddrawbacks in bank liquidity management in China. On12th of October,2013, ChinaBanking Regulatory Commission issued Measures of Liquidity Risk Management ofCommercial Bank (Practice)(Draft for Comments) to make adjustment in liquidity riskmanagement framework, selection of liquidity risk supervision indicators and differentdegree of supervision of commercial banks of different types. On20th of July,2013,People’s Bank of China cancelled the floor on lending rates of0.7times. And thelending rate and profit are determined by financial institutions independently. Theinterest rate liberalization intensified the competition among banks and the bankliquidity risk was also risen.Liquidity is the lifeline of commercial banks. Through the analysis on trend ofliquidity and the implementation effect of policy tools, we can have a good command oftime and strength of policy implementation to better serve the micro andmacro-economic operation. Deposit reserves policy is the most common monetarypolicy tool to solve the problem of liquidity. This paper is aimed at exploring theimplementation effect of deposit reserve rate change on liquidity and it further perfectsthe reverses policy with analysis. It mainly adopts the method of literature reference,theoretical analysis and empirical analysis. The paper has a general analysis andapplication practice in China of deposit reserves policy. It analyzes that the depositreserve rate influences the liquidity with the change of excess reverses and the impact ofmonetary base. The excess reserves could change the size of loan of banks and themoney multiplier could change the amount of money supply. It applies the time seriesmodel to have a stationary test on the overall liquidity of commercial banks. Besides,through Granger Causality Test, it establishes the impulse response function to haveempirical analysis on commercial banks of different properties with panel data. Throughthe empirical analysis, it concludes that deposit reserve rate and liquidity interact asboth cause and effect and they have a stable long-term integration relationship.Meanwhile, the function of deposit reserve rate has certain time-lag and according toimpulse response function, the policy has time-lag for three months. Commercial banks of different properties have different reflections on policy and the small andmedium-sized commercial banks have the sensitive reflections. What’s more, the paperputs forward some policy suggestions according to the conclusion. For example,optimize the differentiated deposit reserve rate system, strengthen its liquidity and assetsliability management, accelerate the construction of economic and financingenvironment and coordinate the use of other monetary policy tools.This paper has empirical analysis on liquidity of the whole banking system andthat of large scale and small and medium-sized commercial banks respectively. It adoptsloan-to-deposit ratio to express the liquidity. Besides, it adopts time series and paneldata to comprehensively and systematically study the adjustment effect of depositreserve rate.