Maturity Mismatch, Liquidity Creation and Bank Fragility
- XIANG Houjun, ZENG Qi
- Guangdong University of Finance, 510521.
With the change of macroeconomic situation, the maturity mismatch of China's commercial banks in asset and liability management is becoming more and more serious. In particular, the maturity mismatch of inter-bank business has a profound impact on not only the operation of banks, but also on the inherent stability and fragility of commercial banks. In response, the regulatory authorities have launched a number of targeted and strong regulatory measures while paying close attention. In view of this, from the perspective of inter-bank business, with the mismatch of inter-bank maturity as the main line of analysis, the paper systematically explores how the inter-bank maturity mismatch works its effect on bank liquidity creation, and their impact on bank fragility. On the basis of this, the impact of strong financial regulation on the correlation between maturity mismatch and bank fragility is further studied. The results show that the maturity mismatch caused by banks' excessive participation in inter-bank business significantly increases the inter-bank liquidity creation, but leads to the decline of their overall liquidity creation. Interbank liquidity creation significantly enhances the correlation between maturity mismatch and bank fragility: with the expansion of inter-bank liquidity creation, inter-bank maturity mismatch further aggravates bank fragility, much more so for small and medium-sized banks than for large banks. Finally, a series of regulation strengthening policies that have been launched since the second half of 2016 have caused fierce fluctuations in inter-bank liquidity, leading to panic reactions of the market, which in turn has deepened bank fragility in the short term.
JEL：E44, G21, G28
- Maturity Mismatch, Liquidity Creation, Bank Fragility, Inter-bank Business