Correlation Between Chinese Commercial Banking System And Financial Stability

Commercial bank has been an important part of the financial system,and their development level?operational efficiency and the ability of resisting risks can directly affect the stability of the financial system,while the stability of the financial system is also a necessary prerequisite for the healthy development of commercial banks.Therefore,the study of the system of commercial bank is inseparable from the broad framework of financial stability.Since the reform and opening up,China's commercial banks have experienced a transformation from a planned economy to a market-oriented economy.The reform of commercial bank has achieved initial success currently,but there are still many problems,such as serious oligopoly?low banking marketization level and the imperfect regulatory system and so on.These issues affect the operational efficiency and risk control of commercial banks,and impact the stability of the financial system.If the financial stability is rocked,the commercial bank will be difficult to sustain healthy development.Combining the practice,this paper makes an theoretical and practical study on the correlation between the commercial bank system and the financial stability.The study is not only to enrich and verify the relevant theories,but also to provide objective and valid reference for financial regulatory sectors..This paper studies on the correlation between commercial banks and financialstability from the theoretical studyfirstly.Introduction includes background and significance,research ideas and methods,the main research content and defect.Chapter Oneis thetheoretical basis thatstates the correlation between the commercial banking system and financial stability,defines the concept of the commercial banking system and financial stability,and summarizes the theory and existing research results.Commercial Bank is the financial hub of the system of financing mechanism,its operational efficiency and risk control level directly affects the liquidity and efficiency of resource allocation in the financial system.The higher liquidity and more effective allocation of resource,more stable financial system will be.On the contrary,as a macro living environment of commercial banks the robustness of financial system can ensure the sustainability of development of commercial banks.Chapter Two provides an overview of the evolution of China's commercial and financial stability of the banking system in the aspect ofevolution and characteristics of Chinese banking system,the type and the characteristic of financial stability and the history and current situation of commercial banks.Chapter Three deductsthe correlationbetween commercial banks and the financial stability respectively from the macro and micro levels on basis of the theoretical analyses and takingsystem theory as a framework.Chapter Four analyzes the fragility of commercial banks and financial stability,designs five comprehensive index including the development status of the financial market,the degree of financial fragility,stability and liquidity in financial markets to study the correlation of the regional commercial banks system and financial stability.Chapters Four is also the empirical analysis part of the correlation of commercial banking system and financial stability.In the framework of TVP-VAR model,Chapters Five simulates respectively using the sample data of six countries including the United States,Germany,Japan,Russia,India and Brazil.The results show that,in the sample period,there are differences between the macroeconomic environment,the banking industry concentration,market access,ownership structure and bank supervision system,etc.from both developed and emerging market countries.These differences led todifferent direction and intensity of the correlation between the commercial banking system and financial stability.The empirical results shows the differences of the fragility of commercial banking system and financial stabilitybetween China and the developed countries(United States,Germany,Japan)and emerging market countries(Russia,India,Brazil).Fromthe perspective offinancial stability binding empirical results,Chapter Six gives four policy recommendations to optimize the commercial banking system that completing the organizational structure of Chinese commercial bank system,optimizing the commercial bank market access and exit mechanism,deepen structural reform bank equity and strengthen our banking supervision systemThrough theoretical and empirical analysis,we obtained the following conclusions:1.Theoretical analysis shows that there is significantly correlation between the commercial banks and the financial stability.We draw the following conclusions with the theoretical deduction of the second chapter.Firstly,the development of the commercial banks can be affected by the stability of the financial system.The only financial stability can ensure the sustainable development of the commercial banks.Second,the risk of the commercial banks can affect the stability of the financial system.There is an existing reaction mechanism between the stability of the commercial banks and the financial system.2.The empirical result shows that the commercial banking system and the fragility of financial stability have time-varying correlation.The empirical research always makes the model parameters being constant for the past commercial banking system and financial stability of the association.That is assuming correlation between the two remains constant within the sample interval.However,due to frequent changes and complex developments of financial macro-environment in the commercial banks themselves,this assumption is generally not satisfied.But this paper relaxes this assumption and introduces TVP-VAR model to simulate the dynamic association between commercial banking system and financial stability.According to empirical results in chapters V and VI,we can conclude that there is a significant correlation between the vulnerability of the commercial banking system and financial stability,and it also has a time-varyingcharacteristics.3.The fragility of Chinese commercial bank has an positive impulse on financial stability and the degree of positive impact gradually increased,which indicates that dependent of the commercial bank is gradually strengthening.The empirical results with TVP-VAR model shows that the fragility of Chinese commercial bank has a positive impulse on financial stability in the sample period.However,due to the correlation coefficient increased gradually as time goes on,it indicates that the dependent of China's financial stability on commercial banks is getting stronger.4.Chinese financial stability of the commercial banking system fragility and extent of changes in the direction of impact is more obvious,that indicates the impact of the financial stability of commercial banks is complex.Empirical results from TVP-VAR model shows that China's financial stability indicators have a positive impact on commercial banks vulnerability indicators only from 2003 to 2007.but in the rest of the time shows a negative impact,and the impact amplitude changes significantly in the sample period.This indicates the divergence of stable development of China's commercial banks and the financial system.The departure is caused by changes in China's commercial banking system architecture and macro-financial environment.5.The association between fragility of commercial banks and the financial stability in different countries is different.Comparing with the empirical results of China,there are larger differences between the commercial banking system and financial stability in other countries.In addition to the macro-financial environment and special financial factors event,the difference can also be explained by the inside and outside of the commercial banking system.By comparison,China can draw lessons from other countries on commercial banking system constructionin order to remit or even eliminate the reverse restriction of commercial banks and financial stability.Only there is a normalcorrelation between the two,can we improve the operational efficiency and risk control to sustain the financial stability and then through the reaction from the financial stability to sustain the development of commercial banks.