An Analysis On Micro-prudential Regulation And Its Influence To The Liquidity Creation Of Commercial Banks In China

Commercial banks play a very important role in the financial intermediaries.They create liquidity for the entire social and economic development.Practice proves that commercial banks run mostly owing to liquidity risk.The international financial crisis gave us enlightenment.Even capital adequacy ratio can achieve the goal,we still can not guarantee that banks can fight against short-term liquidity troubles and avoid the risk of failure.Multiple regulatory indicators make great contribution to prevent the liquidity risk,capital risk,bankruptcy risk and so on.But on the other hand,they have a negative effect on liquidity which is produced by banks to the real economy.It is advantageous to study the relationship between bank liquidity creation and bank supervision for the risk management system of commercial banks.It can also provide a new perspective for the problem of the regulatory balance between liquidity and bank stability.This paper adopts the method about liquidity measure of Berger and Bowman(2009).I measure the liquidity created by our country’s 112 Banks.We use the dynamic panel model to make regression analysis by liquidity creation,asset tier 1 capital ratios,leverage ratio,provision coverage ratio and liquidity ratio.The paper concludes as follows.(1)The effects on liquidity creation by capital adequacy ratio depends on different types of banks.For large commercial banks,the impact on liquidity creation of capital ratios are no significant.For small commercial banks,improving the level of capital adequacy ratio can make the liquidity creation reduced,which verified the “financial fragility-extrusion hypothesis”.(2)The leverage ratio regulation may lead to unfairness between banks of different patterns and risk status.Large commercial banks operates stabilitly,have sound capital supplement mechanism and the prestige is good.Therefore,they can acquire supplements more timely and effectively when out of capital.So leverage ratio can not make strong influence on them.Capital supplement mechanism of small and medium-sized commercial banks is not strong enough.It may owes to financing channel constraints,low valuation and so on.When small commercial bank capital is insufficient,they can’t get supplement timely and effectively.Then their leverage ratios go down,and they would be constrained by capital.Considering from this aspect,small commercial banks’ liquidity creation would be constrained by leverage constraints.(3)The improvement of provision for coverage will inhibit credit expansion of the commercial bank.While they are reducing liquidity risk,bank liquidity creation will also be reduced.(4)To meet the requirements of the liquidity regulatory index,banks tend to hold more liquid assets such as excess reserves and government bonds.The effect of the regulation will enable banks to reduce their liquidity term mismatch and constrain liquidity risk.But at the same time,it also can reduce their transmission process of liquidity liabilities into illiquid assets which lead to the decrease of liquidity creation.According to the result of empirical analysis,we provide some policy suggestions from the aspects of the banks and the regulatory authorities.This paper suggests that commercial banks should strengthen the liquidity creation of assets and liabilities especially off-balance sheet business creation when pay attention on liquidity risk.It can increase profit opportunities.Banks should handle both profitability and stability.It is important to match the quality of the assets,liabilities and the term structure reasonably.It will be useful to strengthen test of financial innovation risk and anticipate of liquidity reasonably.Also,the liquidity risk of commercial banks to control should be improved and pay attention to the scientific use of regulatory index.Liquidity creation effect of bank regulation varies by bank heterogeneity.So we suggest that regulators should make different regulatory standards for different types of banks and implement specific regulatory means.Foresight,robustness and different regulation of heterogeneous bank should also be taken seriously.Effective supervision policies should be implemented.Both stability and liquidity creation should be taken seriously for the harmonious development of the banking system.