Research On The Liquidity Creation Peer Effect Of Chinese Commercial Banks

It is documented that for any bank to be competitive,it must fulfill two core missions:a bank must be able to transform risk and creation.According to risk transformation theory bank transform riskless deposits to finance risky loans.According to liquidity creation theory bank create liquidity through transforming liquid liabilities to finance illiquid assets.Deposits and loans are the traditional business of commercial banks.On the one hand,commercial banks convert deposit business into loan business,which creates a bridge for capital demanders and suppliers and create liquidity;on the other hand,banks will transform riskless deposits to risky loans.The process of liquidity creation exposes bank to numerous risks.While this is a vital service to economy,it leaves banks vulnerable to runs.In the traditional business of commercial banks,commercial banks are mainly borrowing short and lending long,which made the structure of commercial banks’asset and liability structure similar and makes serious business homogeneity.With the development of intermediary business and Internet finance,the variety of banking business has increased,which provides a new way for liquidity creation.According to the existing research literature,most scholars’ researches on liquidity creation mainly focus on the following aspects:First,the definition of liquidity creation and the method to measure bank liquidity creation;second,some research about bank liquidity creation is based on the macroeconomic environment,including monetary policy,economic development level,financial system,and internet finance.Third,other research on bank liquidity creation based on the bank’s micro-characteristics,such as capital adequacy,internal governance,liquidity risk,and competition,etc.Recently,some scholars have considered peer effect between bank liquidity creation,which is that individual bank liquidity creation may be significantly affected by one or more other banks.Studies have shown that in the face of shocks,the banks’ responses are similar,which reflects the similarity in liquidity management of banks,so it is of great significance to study bank liquidity creation.Therefore,based on peer effect between all banks the premise of comprehensive consideration various aspeets,such as region financial development,economic development and Non-interest income ratio,the paper calculates the bank liquidity creation,which includes off-balance sheet business,and apply it to this paper to verify the peer effect between all banks by bidirectional fixed model based on mean,asset size approach and asset size angle.Secondly,for ban ks of different natures and sizes,whether there is a difference in the peer effects of liquidity creation for different natures and sizes banks.Finally,we will further study how the moderate variables such as regional financial development level and economic development level affect the peer effect of liquidity creation.The empirical results show that,firstly,based on mean angle,bank liquidity creation has a significant negative peer effect among banks.Secondly,With the different character of banks and the difference in asset size,bank liquidity creates different degree negative effects on peers,especially city commercial banks,joint-stock banks and small asset banks have the most negative degree.Thirdly,the degree of regional financial development has a significant strengthening effect on the negative peer correlation between bank liquidity creation.The higher the degree of financial development in the region where the bank’s headquarters is located,the more significant is the negative relationship between bank peer liquidity creation.The level of economic development has a significant weakening effect on the negative peer correlation between bank liquidity creation.The higher the level of economic development,the smaller the negative relationship between bank peer liquidity.Based on the mean value,the proportion of non-interest income does not have a significant correlation with the bank liquidity creation peer effect.Loan-to-deposit ratio has an enhanced effect on the peer effect of liquidity creation.The results of this paper provide new evidence for a better understanding of the peer effect between bank liquidity creation.It shows that individual banks will reduce their own liquidity creation while the peers create more liquidity,which reflects the automatic stability mechanism of liquidity creation.This requires regulators to pay attention to peer effect on the bank liquidity creation and strengthen the effectiveness of monetary policy.Finally,this article puts forward corresponding policy recommendations from the perspectives of that regulators should appropriately pay attention to the peer effect on bank liquidity creation to strengthen the effectiveness of monetary policy and the factor which influence the peer effect of commercial banks’ liquidity creation.