The Research Concerning Buffer Effect Of Standing Lending Facility On Liquidity Coverage Ratio Implementation

For a long time,the global regulation of commercial banks on capital adequacy ratio has been developing steadily.However,due to the accidental of liquidity risk and the complexity of regulation,the regulation of commercial banks liquidity risk is not effective,which breeds a hidden danger to the global banking industry.In 2008,the US financial crisis spread all over the world,which set off an alarm bell for the global banking regulators.After this,in order to fix the deficiencies of commercial banks liquidity risk management in financial crisis,on December 16 2010,Basel Committee proposed the Basel ?:International Framework for Liquidity Risk Measurement,Standards and Monitoring(hereafter abbreviated as Basel ?),and commercial banks liquidity risk regulation has made a huge progress.Basel ? proposed two regulatory indicators to measure liquidity risk,namely Net Stable Funding Ratio(hereafter abbreviated as NSFR)and Liquidity Coverage Ratio(hereafter abbreviated as LCR).Thereinto,Liquidity Coverage Ratio is an indicator for the short-term liquidity risk of commercial banks.Based on relevant theoretical literature on Liquidity Coverage Ratio and taking Liquidity Coverage Ratio and Standing Lending Facility(hereafter abbreviated as SLF)as the main research object,this paper outlined the definition and impact of Liquidity Coverage Ratio,the definition and the creation of Standing Lending Facility and the reasons of creation and the effect about Standing Lending Facility.Through the revision of the model used by Bech and Keister,this paper depicted how Liquidity Coverage Ratio impacts the commercial banks behavior and the buffer effect of SLF.Using China macroeconomic data and simulated the model by MATLAB,the paper examines whether Standing Lending Facility can alleviate the side effects of Liquidity Coverage Ratio in the face of shocks.The results show that Liquidity Coverage Ratio has some negative effects,because it will lead to commercial banks holding more bonds,reducing the bond interest rate and the overnight bank lending rate and increasing the interest rate of loans.In the face of the impact of Liquidity Coverage Ratio implementation,Standing Lending Facility can play a role in mitigation of the effect.In addition,by setting the Standing Lending Facility rates,the regulators can accurately control the change of the risk-free interest rate.Nevertheless,the mitigation effect of Standing Lending Facility is too low,making the implementation costs too high.