Research On The Influence Of International Capital Flow On Stability Of China’s Commercial Bank

This paper conducts the research about the influences of international capital on the stability of China’s banking system by six parts.Chapter one: The dissertation firstly describes the backgrounds and purposes of our research on the stability of China’s banking system.We state that our banking system plays a key role on the economy,so keeping our commercial banks stable is helpful to our whole economy.International capital,however,can make complicated effects on China’s banking system.Thereafter,we analyze research from home and abroad in order to deeply explore what they haven’t discovered.By the way,we introduce the main parts,methods innovations and weaknesses of our research.Chapter two describes theories about capital movement and the stability of commercial banks.We deeply explore international capital into four parts: concepts,classification,reasons and effects.Capital has different concepts in different periods.As the development of economic globalization,capital flow across countries gradually,becoming a progress redistributing different resourse around the world.Capital movement can be divided as direct investment,security investment and other parts.These progress happens because capital has its own property of seeking profits,such as currency or interest chances.On one hand,capital movement can support the investment of capital inflow country,refresh the international balance sheet and boost the export trade;on the other hand,frequent capital movement messes up the financial field,what’s worse,causing financial crisis.The stability of commercial banks refers to great capacity of maintaining current businesses facing chancing external environment.Commercial banks are important parts of a country’s financial system,helping transfer currency policy.Whether commercial banks behave stably has great impact on a country’s currency,financial policy and economic growth,which makes it important for us to explore the stability of commercial banks.In this paper,we measure the stability qualitatively and quantitatively,so that we could better analyze it.Chapter three describes the pattern about impact of international capital movement on China’s banking system.As we all know,capital movement includes capital inflow and capital outflow.The effects of Capital inflow on ou r banking system include: the liabilities of foreign institutions or individuals are reduced,the assets are increased;the liabilities of our own institutions or individuals are increased,and the assets are reduced.On one hand,international capital inflow provide sufficient money for expansion of bank’s loan.Commercial banks can use the money to expand loan market and develop itself.On the other hand,international capital inflow also bring risks to banks,such as decreasing their profits when they fail to manage well.firstly when it comes to capital structure,over expansion of loan can make the ratio of deposit/loan become high(in some cases,loans become even larger than deposits),which brings huge risk for the asset of commercial banks.What’s more,it reduces the safety of banking business,and increases the cost and difficulty of supervision.Secondly,commercial banks require to spend a lot of money and labor to keep the new and old relationship in order to expand their loans.However,bankers may feel hard to achieve true information when they face to many customers,which will increase the averse selection risk and moral risk.Thirdly,international capital outflow decrease the scale of loan in commercial banks,which may destroy the capital chain,reduce the liquidity,and ruin the management.Especially for the long capital movement,a sudden and huge capital outflow may cause debt crisis and even turbulence of the whole financial field.International capital movement influences the banking system by three ways: direct impact,indirect impact and secondary impact.Direct impact is defined as the effects of international capital on bank’s balance sheet,so as to changing impact of loanable capital and deposits.Indirect impact is defined as the effects of international capital on macro-economy(financial policy,currency policy,industrial structure)and micro economy,which influences banking system in turn.Secondary impact is defined as the infection of risk around banking system in the progress of capital movement.Chapter four gives out the analysis and assessment of current capital flow and banking stability.Firstly we describe the capital movement since 1980 s.for the past 30 years,capital movement are becoming diversified and complicated as our economy boosts and more opened.After the financial crisis in USA,capital movement refreshed again and became more active,especially in emerging economy.In China,capital inflow increases day by day,but also fluctuates due to the world’s economy.Nowadays,new phenomena happen in our country as the whole economic environment changes,which bring risks to commercial bank,too.Facing the problem,our banking system performs well and facing a brighter future by achieving lower NPL,]higher capital adequacy ratio.Also there exists problems behind the nice perform: single profit sources,mainly by the interest gap between loan and deposit.Chapter five is the empirical study of the influence of international capital flow to China’s commercial banks’ stability.This paper chose BSS model with total deposits,credits to non-government program and foreign liability of commercial banks as proxy variable for the stability of Chinese commercial banks.Then we made multi-variables linear regression to panel data from 2014 to 2016 on a quarterly basis,where we choose 10 variables based on macroeconomics index and bank economic indicators,to analyze the impact of short-term capital flow to the stability of commercial bank.according to the results of overseas securities investment,foreign exchange/M2,the CPI index,exchange rate is negatively related to the stability of commercial bank,and overseas securities,the largest contribution to other investments,the Shanghai index and stability is related to commercial Banks,and other investments,the largest contribution in all significant related variables,overseas securities and significantly higher than the largest contribution to the other variables,foreign direct investment,the GDP growth rate and real interest rates was not significant.Chapter six gives the suggestion about how to neutralize the influence of international capital movement to the stability of commercial bank.Learning from the international experience of managing international capital movement,China should impose more sound financial policies to coordinate the supervision system and economic development,such as the requirement of capital adequacy ratio and currency policy.