Summary:
When a liquidity shock occurs in the interbank market, all banks tend to adopt uniform liquidity hoarding to mitigate losses caused by asset discounts due to liquidity scarcity. However, this behavior often impedes banks that were not initially affected from accessing necessary liquidity, thereby exacerbating risk accumulation and contagion. As systemically important banks, which act as stabilizers in China's banking system, it is crucial to empirically evaluate whether these banks “follow the trend” by hoarding liquidity or actively “defy the trend” by releasing liquidity to stabilize the financial market during liquidity shocks. Thus, it is of great practical significance to explore whether and through what channels systemically important banks play a stabilizing role during periods of liquidity shock. Based on this, this paper uses micro panel data of 131 Chinese commercial banks from the third quarter of 2018 to the first quarter of 2022, adopts a continuous difference-in-differences (DID) model and difference-in-difference-in-differences (DDD) model, and starts from the liquidity hoarding to empirically test the stabilizing role of systemically important banks during liquidity shocks. It is found that when a liquidity shock occurs in the interbank market, systemically important banks do not engage in uniform liquidity hoarding. Instead, they act as a “counter-cyclical hero”, serving as stabilizers for the financial market, consistent with their role in maintaining financial stability. Specifically, (1) the phenomenon of bank liquidity hoarding triggered by liquidity shocks is primarily driven by banks with substantial interbank market risk exposure. (2) At the same time, the heterogeneous analysis of systemically important banks and non-systemically important banks found that the liquidity hoarding level of systemically important banks was significantly lower than that of non-systemically important banks. (3) Channel analysis reveals that systemically important banks mainly reduce liquidity hoarding through pledge repurchase via interbank channels and asset purchase, and the collateral required for their pledges and the financial assets purchased are mainly government bonds and policy bank bonds. Our marginal contributions are as follows. First, this paper provides clear empirical evidence for China's systemically important banks to act as stabilizers in the financial market during liquidity shocks from the perspective of liquidity. Second, by analyzing the behavioral strategies of systemically important banks under liquidity shocks, this study reveals the specific paths and channels through which these banks stabilize financial system liquidity. This has important practical implications for understanding the functioning of China's financial market and for enhancing the central bank's strategies for market stabilization. Third, compared with previous literature, this paper introduces more exogenous and general shocks into the research design and constructs an interbank market risk exposure indicator to characterize the heterogeneous impact of liquidity shocks on liquidity hoarding, thereby enriching the literature on the relationship between liquidity shocks and liquidity hoarding. The main conclusions of this paper have several focal suggestions. First, in view of the channel perspective of systemically important banks releasing liquidity, during periods of liquidity shock, the central bank should properly adjust the eligible collateral management framework and optimize the pricing mechanism for financial assets to reduce the costs of defying the trend for systemically important banks. Second, from the perspective of the central bank's targeted release of liquidity, when a liquidity shock occurs, the central bank should prioritize releasing liquidity to systemically important banks to reduce the cost of maintaining financial stability through the “defy the trend” channel while preventing opportunistic behavior by other banks. Third, from a broader perspective, explore and design an automatically triggered liquidity adjustment system that enforces tiered penalty rules for all banks based on the difference between their legal reserves and actual reserves, with the rule automatically executed after a crisis occurs and clearly informed to all banks.
宗计川, 吴庆帮. 流动性冲击与系统重要性银行的稳定作用[J]. 金融研究, 2025, 538(4): 21-38.
ZONG Jichuan, WU Qingbang. Liquidity Shocks and the Liquidity Role of Systemically Important Banks. Journal of Financial Research, 2025, 538(4): 21-38.
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