The Impact Of Financial Development On The Stability Of Commercial Banks

How to grasp the nature of finance correctly,deepen the structural reform of financial supply side,balance the relationship between steady growth and risk prevention are problems requiring careful consideration in the process of financial development in China.China's economy has been transitioning from the stage of rapid growth to the stage of high-quality development.This is a pivotal stage for transforming our growth pattern,improving our economic structure,and fostering new drivers of growth.Deepening the reform of the financial system,building a multi-level,wide coverage and differentiated banking institution system,and developing inclusive finance and multi-industry small and medium-sized financial organizations have also become important support for enriching the financial institution system and stimulating the vitality of economic production in China.However,deepening the financial reform,especially deepening the financial marketization reform,may also has a negative impact on the financial market,it may destroy the stability of the financial system.Undoubtedly,financial development helps to break the pattern of financial restraint and provide a driving force for shaping the market-oriented financial system.However,China's financial development has led to a series of problems,such as financial bubbles and capital debasement,and so on,which show their negative effects on financial stability now.As the most important financial intermediary in China,commercial banks are affected by financial development inevitably.The rapid growth of shadow banking,internet finance and other financial institutions and operations are accelerating the financial disintermediation.The elimination of interest rate control on deposit and loan by the government has resulted in inter-bank price competition as the main mean of market competition,and the reduction of franchise value of commercial banks has aggravated their phased operational risks.Although with the deepening of finance andthe increasing of money stock provide more sources of funds for commercial banks,which can alleviating the decline of deposit of commercial banks,the traditional liquidity management model of commercial banks is difficult to sustain due to the structural adjustment of finance.The "Cash Crunch" in 2013 and the "Bond Disaster" in 2016 show that the stability of commercial banks is not optimistic.Therefore,only by clarifying the impact of financial development on the stability of commercial banks and resolving the contradiction between them,can China's economy maintain a healthy vitality in a stable financial environment.Therefore,this paper reviews the relevant research literature at home and abroad and constructs a theoretical analysis model of the stability of banks to investigate the impact of financial development on the stability of commercial banks,and seeks solutions to improve the stability of commercial banks.In order to further verify the theoretical research conclusions,this paper also takes China's listed commercial banks as the sample for empirical research.The purpose of this study is to examine the following major issues: Firstly,will financial development impact the stability of commercial banks directly? From the perspective of financial scale,financial structure and financial marketization,do they have the same impact on the stability of commercial banks? Secondly,based on the perspective of competition environment and subject behavior of commercial banks,what are the key paths of financial development affecting the stability of commercial banks? Thirdly,how does financial development affect the stability of commercial banks in the context of money supply shock? The main research contents are as follows.Firstly,through the review of literature,we defined the connotation of financial development and the stability of commercial banks,and clarified the scope and level of the study.Secondly,we summarized the theory of financial development and bank stability,and combed the relevant literature on the impact of financial development on the stability of commercial banks.Thirdly,we summarized the domestic and foreignresearch based on the perspective of the competition environment and subject behavior of commercial banks,three key paths of financial development affecting the stability of commercial banks were extracted,and on this basis,a theoretical analysis model of the stability of banks was constructed.The model integrated the financial development,market competition of commercial banks,financial innovation of commercial banks,credit flow of the commercial banks and the stability of commercial banks into a unified framework for analysis,which can reveal the impact of financial development on the stability of commercial banks systematically and comprehensively.Then,this paper evaluated China's financial development from financial scale,financial structure and financial marketization,and calculated the stability of China's commercial banks through Z-score model.Finally,three empirical models were used to test the effect of financial development on the stability of commercial banks directly,the three key paths of financial development affecting the stability of commercial banks and the impact of financial development on the stability of commercial banks under the background of money supply shocks.Through the above analysis,the following conclusions were drawn.Firstly,the expansion of financial scale helps to improve the stability of commercial banks.The expansion of financial scale enhances market liquidity and promotes the expansion of bank credit,thus optimizes the financing environment of enterprises.Moreover,the expansion of financial scale provides monetary support for economic growth,which in turn provides guarantee for the growth of commercial bank's earnings.Secondly,the diversification of financial structure helps to improve the stability of commercial banks.Although non-bank financial institutions have suppressed the commercial banks' market share in deposit and loan,they have also diverted the commercial banks' high-risk credit demand.It can be seen that the establishment of a more rational diversified financial system and the breaking of the legal andinstitutional constraints in the construction of the financial system can not only meet the needs of economic development,but also help to reduce the risk-taking of banks.Thirdly,the financial marketization reduces the stability of commercial banks.The financial marketization reform has become the major trend in China's financial development,but it damages the market position of banks and reduces the share of bank credit.Market-oriented interest rate mechanism forces banks to reduce credit profit margin passively.Active financial transactions lead to the fluctuation of bank assets and liabilities value,which is more obvious under market shocks.At present,China's financial market reform is not yet complete,and the adaptability of market participants to the market reform is still insufficient,which is the main reason for the financial market to promote the stability of commercial banks.Fourthly,financial marketization reduces the stability of commercial banks by intensifying the competition in the banking market mainly,and the competition in the banking market also reduces the positive promotion of the expansion of financial scale to its stability.Therefore,from the perspective of maintaining financial stability,the regulatory authorities must pay full attention to the competition in the banking market,avoid the banking crisis caused by competition upgrading,and try their best to achieve the balance between financial development and the competition in the banking market.Fifthly,the impact of banking financial innovation on the stability of commercial banks is limited now.At present,banking financial innovation is still in its infancy.Many innovative businesses and products that may lead to financial crisis have not been fully activated,and banking financial innovation is in a risk-controlled zone.Financial development has changed the credit flow of commercial banks and increased the real estate credit inflow.The behavior of real estate credit expansion of commercial banks has a negative impact on bank stability,the prevention of real estate credit risk is still a major issue faced by commercial banks.Strengthen themonitoring of the real estate market,do a good job of real estate credit risk identification and differential pricing are the top priorities of the credit risk management of commercial banks.Sixthly,during the period of monetary tightening policy,the stability level of commercial banks is low.However,in the context of monetary tightening,the expansion of financial scale still helps to improve the stability of commercial banks.Moreover,although the financial marketization will reduce the stability of commercial banks itself,it can restrain the adverse impact of monetary tightening on the stability of commercial banks.Therefore,an important conclusion was drawn: in the period of accelerating the financial marketetization reform,we should consider its regulatory effect on monetary policy and ensure the coordination between the marketetization reform and the effect of monetary policy,and promote the stability of commercial banks ultimately.