Bank Liquidity Creation and Systemic Risk-From the Perspective of Interbank Business

Abstract

Abstract: This article uses data of listed banks in China from 2011 to 2021, to examine the impact of bank liquidity creation and its structure on systemic risks. The empirical results show that banks that create more liquidity have a greater impact on systemic risk. From the perspective of structure, the systemic risk effect of liquidity creation basically comes from the interbank liquidity creation. The impact mechanism is that liquidity creation intensifies the individual risks of banks, while the interbank liquidity creation increase both the individual risks and systemic linkage. Based on the facts that liquidity creation plummeted in 2017, it is found that intensive financial supervision has restrained banks' excessive liquidity creation and defused systemic risks. Finally, this article also finds that the risk effect of liquidity creation is more pronounced in banks with smaller scales, higher inter-bank participation, and higher profitability. When the economic growth slows down and the stock market is turbulent, this effect will increase; and loose monetary policy can alleviate the risk effect. Based on the interbank business perspective, this paper complements related research on the impact of liquidity creation structure on systemic risk.

Key words: bank liquidity creation, systemic risk, interbank business, intensive financial supervision

CLC Number:

F832

ZHOU Ye, CHEN Juejin. Bank Liquidity Creation and Systemic Risk-From the Perspective of Interbank Business[J]. Journal of Guizhou University of Finance and Economics, 2023(06): 22-32.

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