The Influence Of Banking Industry Competition On Banks Stability And Banking System Stability

The banking industry is an important component of one country's finance system. Banking stability is of great significance to realize finance stability. The repeatedly eruptive banking crises warn people the importance of banking stability again and again. To deal with the current challenge, European and American countries have taken measures to promote the competition among banks in recent years. In order to change the underdeveloped situation of banking industry, the government takes measures to improve banking industry competition of our country. The banking industry of our country has to confront the competition of foreign banks directly from the end of 2006. Obviously, as an independent industry of the national economy, the change of the banking industry competition will affect banking stability greatly. In contrast with the urgent need of the practice, the existing analysis about banking stability from the angle of the industry, especially the industry competition is relatively little. So, the analysis of the influence of the banking competition on banking stability has its theoretic and realistic significance.Banking stability consists of banks stability and banking industry stability in this dissertation. Based on the Industry Organization theory, this dissertation, from the banking industry compete-tion and with the link of the single bank, analyzes the influence of the competition on banking system stability. Firstly, three research objects--China's banking industry competition, main banksstability and banking system stability are measureed respectively. Secondly, the mechanisms of banking industry competition's influence on banks stability are defined based on theory model and how the mechanism influences banks stability is studied respectively. The mechanisms are spread, efficiency and differentiation. After theory analysis, the spread, efficiency and differentiation of our country' main banks are measured and the mechanisms of the influence of China's banking industry competition on main banks stability are tested empirically by the econometric method and case analysis. Banks stability is changed by banking industry competition which will influence banking system stability. This influence is probed by the theory analysis, quantitative analysis and econometric test. Finally, after analyzing two links: from banking industry competition to banks stability and from banks stability to banking system stability, the relationship between the banking industry competition and China's banking system stability is probed.Through the theoretical analysis and empirical test, some conclusions are drawn in the dissertation. (1) The results of Herfindahl index and PR method both show that the banking industry competition improves evi-dently. The results of the means of combining the quantitative index analysis method with the econometric analysis method prove that both main banks stability and banking system stability have improved on the whole. (2) The improvement of banking industry competition will decrease banks' spread and ameliorates banks' efficiency and differenttiation. The decrease of the spread is harmful to banks stability, while the increase of the efficiency and the differentiation within some scope is useful to banks stability. (3) The result of the empirical test shows that banking industry competition is useful to main banks stability in our country. In practice, spread is the most important and macro-efficiency is the second. The micro-efficiency is the least important while differentiation doesn't function wholly. (4) Banking system stability is influenced by banks stability through negative externalities of the infection directly. Besides this direct route, large banks stability can influence banking system stability indirectly through affecting the economy development environment in some extent. Banking system is more stable with the improvement of banks stability. According to the empirical test based on the data of China's banking industry, the main banks stability is useful to banking system stability in our country. (5) There is a positive correlation in long term between banking industry competition and banking system stability. If they are in disequilibrium, they will return to equilibrium at a certain rate.In the framework of banking industry competition, banks stability and banking system stability, this dissertation's innovative contributions can be classified into three points. (1) The evolution of China's banking industry competition is inspected by Herfindahl index and PR method respectively, combining the structuralism and New Industry Organization theory measurement methods. (2) The mechanism of the influence of banking industry competition on banks stability is analyzed deeply. This dissertation argues that the spread, efficiency and differentiation are the mechanisms and this conclusion is tested based on the data of China's banking industry. (3) The functional principle of the influence of banks stability on banking system stability is probed. This dissertation argues that banks stability is useful to banking system stability and this conclusion is tested empirically.Despites the author's endeavor, there are still some defects in this dissertation. Therefore, some limits of this dissertation are discussed in the end of the dissertation and the gap will be met in the further detailed study.