A Study Of Bank Stability Based On Financial System

The financial system is defined as a whole set of ways to allocate the financial resources. Financial system direct the the deposite of household sectors to the firms and allocate resources among firms. Financial systems enable the household sector to smooth the consumption fluctuations and to share the risk. Financial system also make it possible for firms to smooth their intertemporal expenditures and to find different ways of financing. The financial system is divided into market-oriented financial system and banking-oriented financial system according to the most commonly used standard. Since Raymond W. Goldsmith proposed"The Financial Structure", the relationship between finance and economy is the eternal subjects of research on economics. There have been extensive researches on the process about the formation and evolution of the financial system, and on the comparison of advantages and disadvantages of different financial system. Since the 1980's, bank crisis have occurred frequently in European, American and Asian countries while financial systems accelerate interfusion. The bank provides fluid, the management payment settlement for the entire society, which is the executive pivot point of the monetary policy. The bank is playing the key role in the financial system. Therefore, the relationship between financial system and the bank stability is worth discussing.In this article, we have first outlined the financial systems in different nations, and then lay a solid foundation for theoretical and empircial analysis by summarizing the evolution process and characteristics of the financial system. Based on the definition of"The Financial Structure", we propose that the micro foundation about the relative scale of financial instrument and financial institution lie in the difference in ability of investment in household sector to the enterprise sector. The nation with low ratio of primary household forms the market-oriented financial system, while the high ratio forms the bank-oriented financial system. Following the basic framework of Diamond and the Dybvig's theory, we make a theoretical model mainly analysis bank operational mechanism under the different financial system. Under the market-oriented financial system, the bank only provides the effective way to the primary household investment, while under the bank-oriented financial system, the bank deposit contract may provide certain fluid insurance to some degrees. Under the bank-oriented financial system, the household sector hold the more bank deposits and the fewer direct investments instrument. After the theoretical analysis, we uses the Logit model and the transnational panel data to test ralationship between leading characteristicsof the financial systematic and the bank crisis probability. The theoretical research and empricial analysis indicate that, when facing the negative impact (for example, the fluctuation of property prices), the bank-oriented and market-oriented financial systems can reduce the crisis probability in a single bank and they can effectively prevent the crisis transmission to different regions. Our country is a nation with bank-oriented financial system. There has always been disputingon our country's financial system reform since the establishment of stock market in Shanghai and Shenzhen in the 1990's. At present, the standard of financial system assessment is based on the function it has on the promotion of economic growth. According to Merton, Bodie'viewpoint (Merton, Bodie,1995), a good financial system should have both efficiency and stability. The policy significance of our research consists in that strengthening the bank dominant position and implementing mixed industry management are feasible route to the future financial system construction in our country.