A Research On Risk Structure Selection Of China's Commercial Banks

During the daily business,commercial banks raise capital through debts and allocate capital through assets,and then gain the difference profit in the transfer of funds.Commercial banks have to make a choice between risk and riskless assets in the process of allocation of funds.Risk structure means the proportion of risk assets and riskless assets in commercial banks' asset side,it could be measured by weighted risk assets ratio.Obviously,the more risky assets,the greater the proportion of weighted risky assets;the fewer risk assets,the smaller the proportion of weighted risk assets.In order to maximize revenue,commercial banks have to adjust the risk structure reasonablely.The essence of banking is business risk,risk has a link between the preceding and the following.Accordingly,risk structure selection is an important part of commercial bank's operation.By the end of 2016,the size of China's banking assets reached 33 trillion US dollars,Chinese banking formally became the largest banking system in the world.The current important issue for Chinese banking is how to maximize revenue by hold risky assets.This thesis will test the relationship between return on asset and weighted risk assets ratio about Chinese banking.Further,this thesis will study the risk structure selection of China's commercial banks based on asset-heavy mode and asset-light mode.Finally,this thesis will study the effect of risk structure selection on commercial banks' stock returns,franchise value,operational stability and systemic risk.Stock returns reflect the evaluation about banks from investors;franchise value reflect the ability of banks to create value;operational stability reflect the operation of the banks;systemic risk is the most important part of current financial regulation.This thesis has eight chapters,all eight portions of contents and conclusions are as follows:Chapter 1,Introduction.This chapter firstly describes the background and the significance of the thesis from the academic value and practical value terms.Secondly,points out the main contents of this thesis,and the research methods used in the process of research.Lastly,points out the innovation and deficiency of this thesis.Chapter 2,Literature Review.This chapter summarize and sort out the relevant existing research about the topic of this thesis from two aspects.On the one hand,it is several risks faced by commercial banks,on the other hand,it is the factors which affecting bank risk.Further,this chapter make some review about the relevant existing research.Firstly,this chapter make a review about the relationship among the risks that faced by commercial banks.Secondly,this chapter make a review about the proxy variables of the risks that faced by commercial banks.Thirdly,this chapter summed up weaknesses about the relevant existing research,and describe how to overcome these weaknesses in this thesis.Chapter 3,Critical Point of Commercial Banks' Risk Structure and Risk Structure Selection.This chapter test the relationship between return on asset and weighted risk assets ratio about Chinese banking,the conclusions are as follow:(1)The relationship between return on asset and weighted risk assets ratio about American banking shows U-shaped curves,return on asset decreases first and then increases with the rises of weighted risk assets ratio,there is an critical point of risk structure that can minimize revenue.(2)The asset-heavy mode and asset-light mode of Chinese banking result in the critical point of risk structure.(3)The critical point of risk structure will change over time,that means there is a series of time varying critical points of risk structure.(4)Commercial Banks make choice about risk structure based on their own conditions:bank with more profitability will more likely to operate on the left side of critical point;bank with larger asset size will more likely to operate on the left side of critical point;bank with fewer operating leverage will more likely to operate on the right side of critical point;bank with greater loan to deposit ratio will more likely to operate on the right side of critical point;bank with greater capital adequacy ratio will more likely to operate on the left side of critical point.Chapter 4,Commercial Banks' Risk Structure Selection and Stock Returns.This chapter study the effect of risk structure selection on commercial banks' stock returns,the conclusions are as follow:(1)Commercial banks' risk structure selection have a significant negative impact on excess returns,investors have a lower demand return about the heavy asset bank that weighted risk assets ratio greater than critical point of risk structure;investors have a higher demand return about the light asset bank that weighted risk assets ratio less than critical point of risk structure.(2)Macroeconomy have a significant negative impact on excess returns;profitability have a significant negative impact on excess returns;capital adequacy ratio have a significant negative impact on excess returns;non interest income ratio have a significant negative impact on excess returns.(3)As a heterogeneity characteristic,commercial banks' risk structure selection will cause heterogeneous effect from macroeconomy to excess returns,macroeconomy have a smaller negative impact on excess returns for heavy asset bank whose weighted risk assets ratio greater than critical point of risk structure;macroeconomy have a greater negative impact on excess returns for light asset bank whose weighted risk assets ratio less than critical point of risk structure.(4)The absolute gap between weighted risk assets ratio and critical point of risk structure have a significant negative impact on excess returns,investors have a lower demand return about the bank which has greater absolute gap;investors have a higher demand return about the bank which has smaller absolute gap.Chapter 5,Commercial Banks' Risk Structure Selection and Franchise Value.This chapter study the effect of risk structure selection on franchise value,the conclusions are as follow:(1)Commercial banks' risk structure selection have a significant negative impact on franchise value,commercial banks whose weighted risk assets ratio greater than critical point of risk structure have a lower franchise value;commercial banks whose weighted risk assets ratio less than critical point of risk structure will have a higher franchise value.(2)Propensity score match is used to solve self-selection problems.The result of propensity score match show that the average treatment effect from risk structure selection to franchise value is significantly negative.(3)As a heterogeneity characteristic,commercial banks' risk structure selection will cause heterogeneous effect of asset size,monetary environment,credit environment and interest rate.Asset size has a enhancemen on the franchise value of heavy asset bank,has a inhibition on the franchise value of light asset bank.Monetary environment has larger enhancement to the franchise value of heavy asset bank,has less enhancement to the franchise value of light asset bank.Credit environment has has less inhibition to the franchise value of heavy asset bank,has larger inhibition to the franchise value of light asset bank.Interest rate has a significant inhibition on the franchise value of heavy asset bank,has no inhibition on the franchise value of light asset bank.Chapter 6,Commercial Banks' Risk Structure Selection and Operational Stability.This chapter study the effect of risk structure selection on operational stability,the conclusions are as follow:(1)Commercial banks' risk structure selection have a significant negative impact on operational stability,commercial banks whose weighted risk assets ratio greater than critical point of risk structure have a lower operational stability;commercial banks whose weighted risk assets ratio less than critical point of risk structure will have a higher operational stability.(2)As a heterogeneity characteristic,commercial banks' risk structure selection will cause heterogeneous effect of return on asset and rate.Return on asset has great enhancement to the operational stability of heavy asset bank,has less enhancement to the operational stability of light asset bank.Rate has great enhancement to the operational stability of heavy asset bank,has less enhancement to the operational stability of light asset bank.Chapter 7,Commercial Banks' Risk Structure Selection and Systemic Risk.This chapter study the effect of risk structure selection on commercial banks' systemic risk,the conclusions are as follow:The vector gap between the weighted risk assets ratio and the critical point of risk structure have a significant positive impact on systemic risk.Commercial bank which have a larger vector gap is more prefer to choose asset-heavy mode,usually have a larger potential capital shortfall.Commercial bank which have a smaller vector gap is more prefer to choose asset-light mode,usually have a smaller potential capital shortfall.Commercial Banks' Risk Structure Selection is granger cause of systemic risk,vector gap has a statistically significant predictive power for systemic risk.Chapter 8,Conclusions and Suggestions.This chapter summarizes the main conclusions of the thesis,and puts forward the policy suggestions.