| Inspired by the reforms in Chinese banking sector since 1978; it moved from being a mono banking framework to a competitive one. The recent economic and financial reforms since 2003 which include the creation of China Bank Regulatory Commission (CBRC),acceptance in the World Trade Organization (WTO), openings for foreign banks, capital and adherence to the Basel accord in 2007 are huge signs of changing the market structure and implementation of new market discipline policies. This dissertation examined three different aspects of financial intermediation in China.The increasing importance of transparency practices and the improving status of bank competition in China are rarely explored in non-performing loans (NPL) literature. Thus, the purpose of first study is to examine banking system transparency and competition along with macroeconomic and bank-specific variables as determinants of NPL. We use two-step system GMM dynamic panel model for Chinese banks based on annual data from 2000 to 2014. Our results indicate that high transparency in the Chinese banking system decreases poor-quality assets but not in the case of government-owned banks, whereas an increase in competition increases NPL. Moreover, we find mixed results in the context of macroeconomics and bank-specific variables. Our study has practical implications for risk management practices and macroprudential policies.In the next study, we tested, does banking system transparency and competition effect financial stability of banks and does transparency have an indirect link via competition with financial stability, by using annual data for 164 Chinese commercial banks for 2000 to 2012.This study accommodated both structural and nonstructural measures following the literature on SCP and NEIO framework. Both types of measures give a unique perspective on the Chinese banking system. While accounting for the Lerner Index and Boone indicator, the banks with higher market power/ less competition tend to have higher credit risk and lead to lowering of financial stability in the form of a direct link which supports the competition-stability view of Boyd and De Nicolo (2005). The banks enjoying greater market power would lead to excessive risk-taking by charging exorbitant interest rates to its customers on bank loans leading to adverse sectional and moral hazard issues. The indirect effect via transparency changes the scenario which is interesting. The interactive effect of transparency and measures of competition show that the banks with higher market power/less competition reduce credit market risk and increase financial stability supporting the competition-fragility hypothesis (Keeley, 1990) which is also argued by (Chen and Hasan, 2006, Gorton and Huang, 2002). While for the nonstructural measures we only found a direct link among concentration/market power measured by C5 and HHIL with financial stability. It suggested that in highly concentrated markets, banks with higher market power tend to have higher credit risk and higher chances of insolvency risk being inefficient while supporting the competition-stability view.The third study empirically tested the role of market structure on bank lending channel of monetary policy transmission. The results indicate towards the existence of the bank lending channel which was consistent in all the estimations. Both the structural and nonstructural measures show that banks with greater market power and increased concentration in the market tend to weaken the bank lending channel of monetary policy transmission while accounting for different bank characteristics such as size, liquidity, and capitalization. In Chinese banking market, the banks which are well capitalized and have good liquidity position are much more insulated to any shifts in the monetary policy stance due to the availability of alternative sources of funds and having buffers of capital to meet the bank loan supply needs. |
PDF Full Text Request