A Research About "Haircuts" Standards For Collaterals Of Lending Facilities Tools By China's Central Bank

In recent years,central bank developed a monetary policy tool system which is mainly liquidity regulation for meeting the short-term liquidity needs of commercial banks.The representative of Chinese monetary policy tools of liquidity facilities in the short term are Standing Lending Facility(SLF),Short-term Liquidity Operations(SLO),Pledged Supplementary Lending(PSL),Medium-term Lending Facility(MLF).However,it may increase it's risk exposure in the bank balance when the central bank operates monetary policy tools of lending facilities frequently,and it's bad to the central bank's financial security.It is urgent for us to study the issue of how to avoid the increasingly prominent risk about the operation of lending facilities tools by it from the perspective of the central bank."Haircuts" for collaterals is put forward under this background.It is a typical risk mitigation tool,and is also the focus of central bank risk management and preparation.A effective "haircuts" for collaterals can reduce default will of commercial banks and loss of the central bank during the operation for liquidity facilities tools by the central bank.The design of this mechanism provides a useful reference for a new liquidity facilities tools has been created by China's central bank.In fact,the main western developed countries have implemented this mature hedging tool called "haircuts" system for collaterals very early.This paper combine the characteristics of China's monetary policy system and commercial banks,it is based on a practical experience of liquidity facilities tools by China's central bank,we design two experiments by revising a model of central bank collateralized lending by James Chapman et al(2010)and dynamic general equilibrium model.We used Eviews7.2 and lingo software to simulate the related behavior on loans by commercial bank from the central bank's objective function,expected default selection valuation perspective.Meanwhile,we analyzed changes in haircuts and interest rates under different policies about of banks' defaults and other factors with the results showing that the unreasonable standards of haircuts will affect the commercial banks'borrowing and lending motivation,distort assets' allocation and price,and increase the central bank exposure,thus affecting the overall social welfare;total output and total social wealth are highest when haircuts and interest rates were set at 11.8%and 3.25%;at the same time,the central bank can control the risk and maximize the welfare of society when the level of wealth is relatively high,that is the interval values of haircuts and interest rate optimal strategy combination remain in h ?(10.0%,16.2%),i?(3.1%,3.5%).