The Vulnerability Of The Banking System Theory And Empirical Study

The stability of the banking system is the core of the stability of finance. The fragility of the banking system is an important subject not only threatening the existence and development of the banking itself, but also relating to the safety of a country's finance system. Since 1980's, the financial deregulation and liberalization have aggravated the fragility of the banking system; it leads the repeated breakout of the banking crises. Owing to the importance of the fragility of the banking system, many countries begin to make deeply research. When China is in the course of transition from planned economy to market-oriented economy, it presents the character of "week fiscal policy and strong monetary policy" for a long time. The dominance of banking in financial system determines that have to take the responsibility of immiting capital and burdening the cost of reforming for state-owned section. Therefore, the fragility of the banking system is the crucial behaving of financial fragility. With the entrances of China into WTO, the extent of market-oriented and globalization is becoming so deep that keeping the stability of banking system is of great importance. So it is an urgent question to analyze the reason of the fragility of the banking system and find the effective measures to prevent the financial risks.It is also the reason why I am concerned. At first, we review the major viewpoints of the literatures concerning the fragility of banking from the macro and micro perspectives, comb and sum up the theories on the banks' fragility. We generally analyze the factors of the fragility of banking system and the evolutive mechanism from it to banking crisis. Then, we elaborate the special mechanism of emergence on the fragility of Chinese banking system from micro foundation and institutional cause. On the basis of it, we build a system of index, which can reflect our country financial fragility degree. After that, we make empirical analysis by collecting practical data and using factor analysis and identify the sources of the fragility of the banking system. We extend our study into open economy and the impact of the fragility of the banking system on the open of banking. At last, the thesis constructs the framework of banking stability, and put forward to the requiring institutional reform. It requires not only the construction of banking system itself, but also the construction of peripheral supporting foundation. All that can create favorable conditions to keep the stability of banking system.This thesis comprises seven chapters.The first chapter is the preface. It comprises a brief background of the study, classifying the basic conception, the research methodology, the structure arrangement and primary contribution.Chapter Two introduces the theories on the fragility of the banking system from the macro and micro perspectives, and summarizes the progress of these theories.Chapter Three reveals the influence factors of the fragility of the banking system under integrative framework. On the basis of the internal fragility of the banking system, it studies the impact of financial liberalization, banking competition, financial structure and macro economy on the fragility of the banking system. It also analyses the negative externalities of banking fragility and the mechanism to banking crisis.Chapter Four emphasizes the special mechanism of the fragility of Chinese banking system in transitional economy under the above analysis framework. It introduces the problems of the banking facing, and reviews the degree of our country banking fragility. Then, it discusses the primary reasons for the fragility of Chinese banking system, that is, vague property right, soft budget constraint, and the cost of maintaining the stability of gradual reform.Chapter Five is the empirical analysis of the fragility of the banking system in China. According to the foreign experience and the specialty of our country, I demonstrate the fragility of the banking system in China from 1985-2004. From the result, I find the main factor affecting the fragility of the banking system is the macroeconomic behavior; the banking assets and the ability of defeating risks have less effect on the fragility of the banking system. It calls for cooperation among various departments and sectors with various policies and measures.Chapter Six discusses the fragility of Chinese banking system in open economy. We analyses the cost and profit due to foreign banks' entry into the host country's banking system in both theoretical and empirical ways. Based on the above analysis, we make a research into the open banking system's positive and negative impacts to the stability of Chinese banking system. Furthermore, we put forward Chinese banks' strategy coping with the opening banking system.Chapter Seven constructs the institutional framework of the stability of China's banking system. At first, we define the fragility of the banking system. Then, we introduce the general assumptions of the stability of the banking system. Finally, we bring forward the detailed plans for the construction of the stability of China's banking system. We should not only strengthen the banking system's inner construction, but also create a favorable operating environment by fully exerting market's restrictive power and improving the bank's supervisory system.