A Study On The Chinese Banking Fragility Measurement And Its Efficiency Improvement

Financial fragility is an obvious feature of the banking. The operation of the banks is supported by the highly levered debt financing and this high debt rate is the fundamental reason of the bank fragility. In a word, fragility is the nature of the banking and it is confirmed in the banking crisis of various developing countries.This dissertation first reviews the literature on banking fragility from macro, medium and micro visual angles. The analysis shows that the nature of the banking determines its internal fragility, the ubiquity of the information asymmetry and the uncertainty exacerbate the continuously accumulation of the fragility. During the process of the institutional changes, financial liberalization, over-intervention of the government and the specific economic institutional background of the transition phase may all increase the fragility of the banking. The dissertation studies the evolution mechanism from banking fragility to financial crises and measures the direct costs and the indirect costs of the banking fragility.This dissertation analyzes the specific forming mechanism of the Chinese banking fragility from macro, medium and micro levels. The micro mechanism is the unitary public property right and the unsubstantial internal-controlling system. The medium mechanism is the specific bank-company relationship, soft budget constraint, monopolistic market structure and the imperfect financial supervision system. The macro mechanism mainly includes the background of entry into WTO, unsound credit system and the intervention of the government. Based on the above analysis a set of fragility measurement indicator system is established. Then a positive analysis on the Chinese banking fragility measurement is made and it is shown that from year 1993 to 2004 the fragility level of our banking keeps right around the critical point and thus associated measures should be taken to stabilize and lower the fragility level. Then it is shown that the macro level factor influences the fragility most, then the medium and the micro the least.Since the stock-holding reform in the micro level has almost been finished, it is argued that emphasis of the efficiency improvement of the Chinese banking fragility should be put on the institutional establishment of the medium level. Three aspects of improving ways are proposed: 1. Establish the competitive market structure of the commercial banks of our country. Models of the banking market system and fragility show that the fragility will not be increased and the social welfare can be improved. 2. Establish and perfect the banking supervision system with the core of risk assessment and control. Further improve the risk evaluation system and highlight the assessment of the self- risk management system of the banks to improve the risk-based supervision system. 3. Establish the explicit deposit insurance system that offers a safety net for the financial system to increase the supervision efficiency, improve the quality of the banking assets and lower the banking fragility.