Empirical Analysis of the Nexus between Interest Rate Marketization, Interbank Business and Bank Liquidity Risk: a Mediating Model

Abstract

Interest rate marketization reform plays an important role in the transition from a planned economy to a market economy, and it poses challenges for traditional banking business model. This statistical research aims at analyzing the relationships between interest rate marketization, interbank business, and commercial banks' liquidity risk using a mediating model. Specifically, a series of panel data models were established to show the impact of interest rate marketization on interbank business and liquidity risk respectively using the financial data covering the period 2010-2020 from 22 listed commercial banks in China. The mediating role of interbank business in the influencing path between interest rate marketization and bank liquidity risk was also analyzed. The findings suggest that interbank business and bank liquidity risk are both positively influenced by interest rate marketization, while interbank business partially mediates the path between interest rate marketization and bank liquidity risk via a negative indirect effect.