Research On The Effects Of Financial Disintermediation On Stable Operation Of Commercial Banks

Since the 1990 s, the financial disintermediation has become an important background of financial operations in our country with the gradual establishment and improvement of capital market. Moreover, it has a certain impact on the stability of our financial operations. Commercial banks, as the foundation and core of the modern finance, its ability to maintain stableperation has become the focus of residents, businesses and government regulators. With the development of economic globalization, financial liberalization, and the market-oriented reform of interest rate, financial disintermediation has brought a huge impact on the stable operation of the commercial banks in our country. We have to pay attention to this problem.Financial disintermediation refers to the direct financing behavior between the supply-side and demand-side of capital which does not need the banks and other financial intermediaries, such phenomenon appears along with the development of direct financing. Financial disintermediation occurred in America firstly, which is a relatively developed country in both economy and finance. And it has brought the huge impact on the commercial banks in the United States. The great depression happened between 1929 and 1933 caused severe damage to American economy. So the government issued a series of regulations, among which the Q regulation on the interest rate of deposit had the largest impact on the commercial banks. Banks were not allowed to pay interest for demand deposits in public and were set a maximum limit for the interest rate of savings deposits and time deposits, which were stipulated in the Q regulation. The implementation of Q regulations played a positive role in the getting rid of the crisis shadow, maintained and restored the financial order. But it also brought some problems. The inflation was high and market interest rates continued to rise in the 1960 s. But deposit rates are capped by the government, so banks lost their original attractive gradually. In the face of the continuous development of the securities market, driven by high- yield, the public turned a large number of deposits to stock market. Commercial banks was put downward pressure on deposits and the credit supply capacity. Appear the interruption of financial intermediation and the phenomenon so-called “financial disintermediation”. The trend of the interruption of financial intermediation and the so-called “financial disintermediation” were rising swiftly then. Then other developed countries such as the United K ingdom, Japan, Canada and other emerging economies such as India, Brazil, Russia and other countries also appeared different degree of financial disintermediation, such phenomena brought a certain degree of influence to commercial Banks.China’s financial disintermediation appeared in the mid-1990 s. With the development of the securities market, C hina’s multi- level financial market has been matures. Since the 21 st century, the stock market, bond market and financial derivatives market have got rapid development. The deepening of financial disintermediation has great impact on our commercial banks. The growth rate of savings deposits of residents showed an obvious downward trend and the proportion of loans in corporate financing is also declining recent years. The dependent degree of residents a nd business on banks weakened at the same time. The tradition deposit and loan business of commercial banks suffered serious impact, thus leading to the hampered of the source and the using of funds of commercial banks. There are also different degrees of liquidity risk and credit risk. The deepening trend of financial disintermediation in C hina not only brings certain impact on stable operation of commercial banks, but also weakens the function of the intermediation of commercial banks to some extent. Moreover, it even brings crisis to stable operation of the whole financial system.With the development of economic globalization and financial deepening, the global trend of financial disintermediation is unstoppable. In our country, the reform of the financ ial system and the changes in the financial regulatory environment provide certain conditions for the financial disintermediation. As the financial disintermediation unfolds in our country, it will present its long-term sustainability of development. The financing mode which dominated by indirect financing and supplemented by direct financing that C hina has been followed will be unsustainable. Under the trend of financial disintermediation, the financial system pattern dominated by banks in our country will change. The development mode of “heavy bank, light market”will shake. The impact of financial disintermediation involves many sides, but the commercial banks will be the first to brunt. And such influence will bring great challenge to the intermediation role of the commercial banks. Data show that in recent years, the intermediation role of commercial banks showed a downward trend, the traditional business began to shrink, savings and loans spread narrowed, the proportion of interest income declined, profits were also affected to some extent. Therefore, further study on the particularity and the development trend of China’s financial disintermediation, comprehensively investigate the impact of financial disintermediation on stable operation of commercial banks in C hina, learn successful experiences from developed countries and emerging economies which commercial banks cope with the financial disintermediation, combined with the actual situation in our country, put forward the strategies which China’s commercial banks cope with financial disintermediation have certain theoretical and practical significance.This paper elaborates the relevant researches on financial disintermediation and stable operation of commercial banks of both domestic and foreign scholars in detail on the basis of the relevant analysis on the theory of financial disintermediation and financial fragility. I also explain the relationship between the financial disintermediation and the stable operation of commercial banks from a theoretical view. Based on the further analysis of different reason and performance of the financial disintermediation in developed and emerging economies, its impact on commercial banks and the strategies of these banks, this paper analyze the causes of C hina’s financial disintermediation and its performance and impact on the whole economy at different stages. Through the comparison among different countries, we explain the effects of financial disintermediation on stable operation of commercial banks in C hina from both the direct and indirect aspects. The direct impact of the financial disintermediation on stable operation of commercial banks is its influence on the traditional business, such as the assets, liabilities and intermediary businesses. The indirect impact is its influence on the financial innovation, risk management and transformation of commercial banks. This paper made a quantitative analysis on the basis of the qualitative analysis. We indirectly reflect the financial disintermediation through the adjustments and changes in the internal business of commercial bank under the background of financial disintermediation. We also build a panel data model of 14 listed commercial banks on the basis of the building of stable operation index on the basis of commercial banks. Thus we can test the effects of financial disintermediation on stable operation of commercial banks in C hina from 2006 to 2013 and draw relevant conclusions. Finally, the paper puts forward strategic thinking to improve the stable operation of the commercial banks in china under the trend of financial disintermediation from the macro and micro aspects.This paper includes seven chapters; the specific contents are as follows:The first chapter is the introduction. The first is the research background and its significance; secondly, it introduces the research ideas and the framework of this paper; then it introduces the studying method; finally it puts forward the main innovations and shortcomings of this paper.The second chapter is the theoretical basis and literature review. The theoretical basis part mainly expounds the financial intermediary theory, financial innovation theory, North’s institutional economics, game theory and the theory of financial fragility. The part of literature review includes related research results about financial disintermediation and stable operation of commercial banks by the domestic and foreign scholars in recent years.The third chapter analyses the relationship between the financial disintermediation and the stable operation of commercial banks and from theoretical point of view. First of all, the financial disintermediation and soundness of commercial banks are defined. And secondly, it detailed the influence mechanism of financial disintermediation on soundness of commercial banks from the macro and micro aspects. Finally we build the indicators of financial disintermediation and soundness of commercial banks. Lay the foundation for the following theoretical and empirical analysis.The fourth chapter is the international comparison. In view of the financial disintermediation originated from developed countries and then it appeared in the emerging economies including China. Therefore, this chapter is divided into three parts. The first part introduces causes and manifestations of financial disintermediation, impact on commercial banks and the strategies of commercial banks in developed countries. The second part introduces causes and manifestations of financial disintermediation, impact on commercial banks and the cop ing strategies of commercial banks in the emerging economies. The third part focuses on the causes of the financial disintermediation in our country, staged performances and the impact on commercial banks, and proposed the direction of financial disintermediation and future problems.The fifth chapter is qualitative analysis. It analyses the effects of financial disintermediation on stable operation of commercial banks in C hina from direct and indirect aspects. The direct impact of the financial disintermed iation on stable operation of commercial banks is the influence of the assets, liabilities and intermediary businesses. The indirect effect is that it promotes the financial innovation of commercial Banks, increases the risk of commercial banks and improves the level of the risk management. At the same time, financial disintermediation also accelerates the pace of transformation of commercial banks to some extent.The sixth chapter is the empirical analysis. Through adjustments and changes in the internal business of commercial bank under the background of financial disintermediation indirectly reflects the financial disintermediation. Build stable operation index on the basis of commercial banks, build a panel data model of 14 listed commercial banks and further test the effects of financial disintermediation on stable operation of commercial banks in China from 2006 to 2013 and draw relevant conclusions.The seventh chapter is about countermeasures and suggestions. Based on the above of qualitative and quantitative analysis, we put forward strategic thinking to improve the soundness of the commercial banks in C hina under the trend of financial disintermediation from the macro and micro aspects. Macro level of the government mainly includes establishing and perfecting the relevant laws and regulations, perfecting the system construction and building effective regulatory system. Micro level of the commercial banks mainly includes adjusting and optimizing the traditional business, promoting financial innovation ability all-round and strengthening risk management and conformity, etc.The possible innovations of this paper:1. Build indicators of financial disintermediationThis article attempts to measure the financial disintermediation from a new perspective. Through adjustments and changes in the internal business of commercial bank under financial disintermediation indirectly reflect the financial disintermediation. And on this basis we build the indicators of financial disintermediation. The deepening trend of financial disintermediation trend makes loan and deposit businesses accounted for the proportion of assets and liabilities decline in the traditional commercial bank. And compared with the corresponding, interbank assets and interbank liabilities of co mmercial banks grew rapidly. Under the financial disintermediation, traditional interest income model of commercial banks faced with severe challenges. And compared with the corresponding, interbank business and intermediate business income of commercial banks increased annually. So in this paper we try to use the changes for the ratio of interbank business and intermediate business income to reflect the financial disintermediation.2. The construction of stable operation index on commercial banksBased on the “The Compilation Guide on Financial Soundness Indicators” issued by IMF in 2006, and also combine with the relevant regulatory indicators of commercial banks constructed by the government in China. My paper selected 10 specific indicators from four aspects according to the existed research results and my topic, such as the capital adequacy, asset security conditions, profitability and liquidity conditions.I also build the index of stable operation of commercial banks using the Z-score method, and then analyze the effects of financial disintermediation on stable operation of commercial banks in C hina subsequently. I put forward some reasonable suggestions in the end.3. The comparison of financial disintermediation of different countriesWe analyze the reasons and the special performance at different stages of financial disintermediation in our country through elaborating the development history of financial disintermediation in the typical developed and the emerging-economy countries as well as the impacts of financial disintermediation on commercial banks and the strategies of commercial banks. By comparison, we point out the future development direction of China’s financial disintermediation and the possible problems, and lay a solid foundation for the qualitative analysis and the empirical analysis below.