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An Empirical Analysis on the Influencing Factors and the Cycle of China’s Commercial Banks’ Liquidity

Author: YaoGuiYi
Tutor: TianChengShi
School: Dongbei University of Finance
Course: Statistics
Keywords: commercial banks liquidity management Influence factors policy suggestions
CLC: F832.33
Type: Master's thesis
Year: 2011
Downloads: 133
Quote: 0
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Since 20 century 90s, with the pace of financial innovation enhancing, global economy being integrated, financial globalization and information technology from strength to strength, on the one side, banking institutions in the world have being faced a huge revolution, on the other hand, they more have being faced various competitions. Under the background of the current international environment, it is a necessary link to augment the management of liquidity to improve the abilities in international competitions of the banking institutions at home, and it is also a must for them to melt into the international market actively. Otherwise, bankrupts and liquidity risks frequently occurred in the last 30 years, which drew the attentions of personages of all circles. The global financial crisis led to by the American subprime crisis in 2007 stroke the alarm bell, it is extremely urgent to augment the credit management, optimize the debt structure and keep a lookout on liquidity risks.Under the macroscopic background of the international economy, the reform of the financial system is also on the way. Considering the particularities of Chinese financial system, banking institutions are affected obviously, especially the SOCBs (State-owned Commercial Bank) have a heavy dependence on the traditional system. However, with China joining in WTO, the level of financial institutions’opening up to the outside world is expanding. Facing the more fierce competitions, we should have a deeply consideration on what management system Chinese banking institutions should choose, how to control risks and how to prevent liquidity risks.Considering the circumstances at home and abroad, in order to manage the liquidity better and to create a better environment for the banking institutions’ developments, this paper chose elements and indexes which have a great influence on the liquidity of banking institutions, and made use of VAR model and VEC model to carry out empirical study to release the explanatory variables’influence directions and influence levels on the liquidity index, at last, valuable conclusions obtained, which have theory value and practical significance. Of course, all these are based on the theories of liquidity. For the first time, the paper comprehensively estimated the influences of interest rate, money supply, rate of the legal deposit reserves, stock index and other macro-economic indexes’to the liquidity index of banking institutions by using the data from Jan.2000 to April 2011, so it has a strong real time. Before research the empirical study, carrying out the analysis of the current liquidity situation is also important, which can reflect the potential questions on current liquidity. The paper did not only give a closely analysis on some liquidity indexes and relevant elements, but it also gave respective analysis on different areas for different banks to release the differences and potential problems on a longitudinal point, hence a more comprehensive analysis on liquidity situation. Another research highlight of the paper is that it creatively studied the cyclic fluctuation state of the banking institutions and the possible dynamic relationship on liquidity cycle and national economy development cycle, which aimed to explore a new view on liquidity management. By using BP、HP the two filtering methods to decompose the liquidity index, the ratio of core deposits, the general length of the liquidity cycle fluctuation obtained, what’s more, the paper studied the dynamic influence directions and the influence levels of the national economy’s speed of increase to the ratio of core deposits by using the state space model and the Kalman filtering method. Ultimately, national regulation departments can use commercial banks’data of cycle fluctuations for reference and combine the stage of economy development to judge the conceivable change of liquidity, then use the frequently-used monetary policy tools to conduct preventive managements on banking institutions liquidity, which is helpful on prevent substantial change on liquidity. Managers of banking institutions can also use the analysis as a reference, then guard against liquidity risks by adjusting business or by managing the capital flows. There are also perspective researches on commercial banks of different properties, releasing the differences of cycle fluctuations and the dynamic influence of national economy to liquidity. So it also reflects the problems in current structure system and structural reform is imperative. According to the empirical studies, the last part of the article provided with suggestions on liquidity management. Although the studies of the paper are definite, it is still not perfect, just as follows:the inner elements are also impotent on liquidity, and they also impotent reference for macroeconomic management, however, for it is difficult in collecting these data, the article only chose some macroscopic indexes exclude the microscopic indexes. Also for this reason, data used in the analysis of the influential factors of liquidity part are data of financial institutes, which can’t accurately reflect the influences of external factors to liquidity index. Indexes used in the papers are all static indicators, so the dynamic liquidity stats can’t be observed. The last, the explore parts of the liquidity cycle and the influences of national economy development to liquidity are not mature and perfect. In the following studies, two points should draw our attention:one side, we should study the theories of liquidity more deeply to process better research. The other side, we have to go deep into data mining to augment the practical value of the study.

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CLC: > Economic > Fiscal, monetary > Finance, banking > China's financial,banking > Financial organizations, banks > Commercial banks ( specialized banks )
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