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Liquidity creation cyclicality, capital regulation and interbank credit: Evidence from Chinese commercial banks

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  • Tang, Ying
  • Li, Zhiyong
  • Chen, Jing
  • Deng, Chao

Abstract

The cyclicality of the banking industry is closely related to financial crisis. Based on the methodology of Berger and Bouwman (2009) to measure bank liquidity creation, this paper investigates whether liquidity creation is cyclical for Chinese banks during 2012–2018. Our results indicate that liquidity creation by Chinese banks is procyclical and this procyclicality is more pronounced among regional banks. And we further explore the influence of capital regulatory pressure and interbank credit on the procyclicality of Chinese bank liquidity creation. We find that capital regulatory pressure and interbank credit are helpful in mitigating the procyclicality of bank liquidity creation, especially among regional banks. As the Chinese banking industry takes a great proportion of the global banking industry, our findings provide various implications on capital regulation and interbank business supervision for national and international bank regulators and policymakers.

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  • Tang, Ying & Li, Zhiyong & Chen, Jing & Deng, Chao, 2021. "Liquidity creation cyclicality, capital regulation and interbank credit: Evidence from Chinese commercial banks," Pacific-Basin Finance Journal, Elsevier, vol. 67(C).
    • Handle: RePEc:eee:pacfin:v:67:y:2021:i:c:s0927538x21000305
    DOI: 10.1016/j.pacfin.2021.101523
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    Cited by:

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    3. Niu, Jijun, 2022. "Labor market conditions and bank liquidity creation," Economics Letters, Elsevier, vol. 218(C).
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    6. Lee, Chien-Chiang & Wang, Chih-Wei & Thinh, Bui Tien & Xu, Zhi-Ting, 2022. "Climate risk and bank liquidity creation: International evidence," International Review of Financial Analysis, Elsevier, vol. 82(C).

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