Research On The Impact Of Capital Structure On Liquidity Risk In Commercial Banks

Commercial bank is dominant in a country’s financial system, and it plays a role of transferring surplus and deficiency of fund and achieving allocation of resources.Bank’s ratio of equity capital is low, and it provides relatively illiquid loan mainly through liquid debt. Thus, high leverage makes bank face potential liquidity risk.Subprime mortgage crisis in 2008 makes many banks into liquidity crisis. To guard against financial risk, “Basel III” made more stringent standards of capital and liquidity regulation. Studying the impact of capital structure on liquidity risk is important for bank to strengthen capital management, optimize the capital structure, and enhance the ability to resist risk.Firstly, the thesis defines bank’s capital structure from two perspectives: from the point of view of corporate finance, capital structure is the ratio between equity capital and debt; from the perspective of capital regulation, capital structure is the proportion of the core capital in the total net capital. Secondly, the thesis analyzes the impact of internal and external factors on bank’s liquidity and describes static and dynamic measure methods of liquidity risk. Finally, on the theoretical basis, the thesis uses the annual data of China’s 40 commercial banks in 2007-2014, defines the liquidity ratio as the dependent variable and debt-asset ratio and the ratio of core capital as proxy variable of capital structure, and divides the data into state-holding banks and joint-stock banks,city commercial banks, uses panel data model to test the impact of capital structure on liquidity. The empirical result shows that the higher the proportion of debt in total assets,the greater the potential liquidity risk resulted from high leverage; the higher the proportion of core capital, the stronger bank’s capacity of risk absorption, more effective prevention of liquidity risk.On the basis of empirical analysis, the thesis presents recommendations to improve bank’s liquidity management from the micro and macro point of view. From the micro perspective of bank’s management, bank should deleverage and increase core capital appropriately by exogenous and endogenous financing to improve capital management;and asset-debt structure should be adjusted by increasing the proportion of liquid assets,and bank should improve liquidity through asset securitization. From the macroperspective of policy environment, we should promote the money market and capital market to increase tool of liquidity reserves and improve bank’s financing capability;we should continue to vigorously promote the deposit insurance system, weakening the fallback mechanism of national credit to urge small and medium banks enhance the awareness of liquidity risk and improve management.