Study On Cyclical Characteristics Of Long-Term Liquidity Regulation For China's Commercial Banking

The recent financial crisis in 2008,which illustrated how quickly and severely liquidity risks can crystallise,highlighted fragility of the liquidity in global financial system and the lack of comprehensive set of global standards.In response to weaknesses in the global financial system,BCBS emphasized the importance of sound liquidity risk management as capital adequacy requirement.The new Basel III rules published in 2009 by the Basel Committee on Banking Supervision(BCBS)proposed the new liquidity indicator,Net Stable Funding Ratio(NSFR),which were designed to promote resiliency over longer-term time horizons.However,a large academic literature and banking sectors pointed out these liquidity requirements had significant negative influence on output,which can be interpreted as an alternative measure of the long-term effect of the new rules.Up to 2014,after three-times revised,Basel Committee had completed version of the liquidity regulation framework,which releasing regulation to avoid interruption to real economy.Adoption of the Basel III accord is being phased in,and it is expected that by 2018 the new regulatory requirement will be fully implemented.Owing to the late beginning,domestic banking industry lack experience of the liquidity management in China."Money Shortage" in 2013 reflected the accumulation of structural mismatch in China's commercial banks.The China Banking Regulatory Commission had developed these new internationally consistent regulatory standards for liquidity risk supervision as a cornerstone of framework to strengthen liquidity risk management and supervision in 2014.The latest liquidity regulatory framework in China is composed by LCR,NSER,Deposit-Loan Ratio and Liquidity Ratio.On the other hand,ample empirical evidence on capital requirement reveal that Capital Adequacy Ratio and Leverage Ratio changes have pro-cyclical effect and enlarge the cyclical fluctuations of financial system.Therefore,BCBS proposed countercyclical capital buffer,to promote a more resilient banking sector under business cycle.As NSFR is similar to CAR proposed by Basel I,this research focuses on whether the Net Stable Funding Ratio,which aims at more sustainable funding of medium-and long-term assets,have the characteristic of pro-cyclicality as well.If then,whether and how NSFR has affected financial as well as macroeconomic outcomes.Based on the final revised version of Net Stable Funding Ratio(NSFR)issued by BCBS in October 2014,this paper estimates NSFR by using an unbalanced panel data of 78 China's commercial banks from 2003 to 2014,and examines the cyclical feature of NSFRs under the fluctuations of macro-economy.The results show that:(1)the NSFRs of commercial banks are pro-cyclicality,and the pro-cyclicality is mainly reflected in the denominator of NSFR,namely required stable funding(RSF),which is on the asset side of the balance sheet.(2)The NSFRs of banks with loan-dominated asset structure are more pro-cyclical,which means that bank's asset structures and lendings are critical factors that lead to the pro-cyclical characteristic of NSFR.