LI Minghui,etc:The Effect of Monetary Policy on Banks' Liquidity Creation——An Empirical Analysis Based on Chinese Banks

Abstract  Based on the data from Chinese banking sector during the period of 1998-2012, we empirically test the impact of monetary policy on banks' liquidity creation. Conclusions showed that monetary policy tightening will lead to a reduction in banks' total liquidity creation, monetary policy tightening will lead to a reduction in banks' on-balance sheet liquidity creation, and an increase in banks' off-balance-sheet liquidity creation. The impact of monetary policy on liquidity creation differs with the banks' size and capital adequacy ratio. The higher the capital adequacy ratio is, the less the impact of monetary policy on banks' liquidity creation will be. For big banks, the impact of benchmark lending rate increasing on liquidity creation is stronger. Conversely, the impact of statutory deposit reserve rate increasing or open market operation on bigger banks' liquidity creation is weaker. The results have substantial implications for both commercial banks in China and the supervisory department.

Key words： Monetary Policy    Commercial Banks    Liquidity Creation    Off-balance Sheet Activities

Source: Finance & Trade Economics , No.10, 2014