The Empirical Study On The Impact Of The Deposit Insurance System On The Liquidity Creation Of China’s Commercial Banks

As the main body of the financial system,modern financial intermediation theory holds that commercial banks have the functions of credit intermediation,payment intermediation and credit creation in modern economic activities.In China,commercial banks provide a continuous flow of liquidity to society through liquidity creation to promote the development of China’s real economy.Commercial banks are an important part of China’s financial system and the level of liquidity creation by commercial banks determines,to a certain extent,the level of their services to the real economy.After more than 20 years of exploration,China officially launched a deposit insurance system in 2015 to protect the interests of depositors and promote the healthy development of China’s banking sector.Since then,the business strategies and risk management systems of China’s commercial banks have made corresponding adjustments in accordance with the implementation of the deposit insurance policy,and these adjustments will also have an impact on banks at the micro level.This paper therefore examines the changes in the level of liquidity creation in Chinese commercial banks after the implementation of the deposit insurance system,which is important for improving the development and sound operation of Chinese commercial banks.The research of this paper consists of five parts:the first part elaborates the background and significance of the research,and summarises the main research directions of this paper through a review of domestic and foreign literature,defines the framework structure and research methodology of the paper,and puts forward the innovation and shortcomings of the paper.The second part conducts a theoretical analysis,firstly defining the meaning of deposit insurance system and bank liquidity creation,and then elaborating the theoretical basis of deposit insurance system affecting bank liquidity creation,including bank run theory,market constraint theory and moral hazard theory.Using the above theories,it analyses the mechanism through which the deposit insurance system affects banks’ liquidity creation,i.e.the implementation of the deposit insurance system affects banks’ liquidity creation by influencing their risk-taking level.The third part focuses on the process of the establishment and development of China’s deposit insurance system and the current situation of liquidity creation of commercial banks.The fourth part is the empirical analysis.Firstly,the paper selects data of 114 commercial banks in China from 2010 to 2021,constructs double difference models and triple difference models,and conducts parallel trend tests to ensure that the model construction is reasonable.Secondly,the paper considers the implementation of the deposit insurance system as a quasi-natural experiment,and investigates through empirical analysis the impact of the implementation of the deposit insurance system on banks’ micro variables,thereby affecting the liquidity creation of commercial banks in China.thereby affecting the level of liquidity creation of commercial banks in China.Finally,the paper uses a placebo test,which indicates that the results are robust.The findings suggest that:(1)The implementation of a deposit insurance system will increase the level of risktaking by banks.(2)The implementation of a deposit insurance system increases the level of bank liquidity creation,which is achieved by affecting the level of bank risktaking.The fifth section summarises the above theoretical analysis and empirical results,and proposes relevant countermeasures.