Financial Openness And Bank Risk-Taking:Theory And Evidence

In recent years,with the significant relaxation of market access for foreign financial institutions,the continuous acceleration of RMB capital account opening,the deepening of exchange rate marketization reform and the orderly progress of RMB internationalization,the pace of China's financial opening has been significantly accelerated,and China's financial opening has ushered in new opportunities for international development.However,we can learn from international experience that although financial openness brings a lot of benefits to a country's economic and financial development,but also contains financial risks.Financial risks brought by financial opening will undoubtedly impact financial stability,and bank stability,as the key and core of financial stability,will inevitably be impacted.The existing studies on financial openness and bank stability mainly focus on two aspects.The first is the research on the mechanism of financial openness on bank risktaking.In this aspect,researchers believe that financial openness affects bank risktaking behavior by influencing their competition(deposit competition,risk-taking opportunity,profit efficiency).Some other studies argue that bank interest margin is closely related to bank risk-taking,because interest margin is the main consideration factor for bank lending,and the structural change of bank interest margin has an important impact on bank profitability and is likely to change bank risk-taking behavior.In addition,financial openness will also have an impact on bank spread.Therefore,the existing studies show that the bank competition driven by financial openness will affect bank spread,and may affect the bank risk-taking through bank spread.This means that financial openness may affect bank risk-taking through the channel of bank interest margin,which has not been considered in existing studies.In addition,existing studies on the impact of financial liberalization on bank risk-taking have ignored the role of macro-prudential policies.The second is the study of financial openness and banking crisis,which mostly fails to consider the impact of deposit insurance system and different forms of capital flows on banking crisis.This dissertation takes the impact of financial openness on bank risk-taking as the main line.On the one hand,from the perspective of bank interest margin,it studies the impact of financial openness on bank risk-taking.Specifically,firstly,based on the existing researchs on the impact of financial openness on bank interest margin,this paper refines the theoretical hypothesis that financial openness leads to the decrease of bank interest margin,and takes bank interest margin as an intermediary variable to establish the theoretical hypothesis that financial openness affect bank risk-taking based on the perspective of bank interest margin;secondly,from the perspective of financial stability and the social cost of financial intermediary allocation of resources,this paper analyzes the impact of financial openness on bank interest margin;thirdly,from the perspective of financial supervision and risk-taking,it comprehensively analyzes the impact of financial openness and macroprudential policy on bank risk-taking;finally,it uses the method of intermediary effect to verify the existence of the transmission channel "financial opening—bank spread—bank risk-taking".On the other hand,from the perspective of banking crisis,this paper studies the impact of financial openness and different forms of capital flow on banking crisis.The answers to these questions not only enrich the research of financial opening,bank interest margin determination,bank risk-taking and banking crisis,and provide an effective analysis framework for the relationship among financial openness,bank interest margin and bank risk-taking,but also provide relevant policy recommendations for deepening China's financial opening,arranging opening order reasonably and improving the operation and management of commercial banks.This paper makes a deep research on the above problems and draws the following conclusions:Firstly,base on the bank interest margin determination research,this paper uses samples of Chinese commercial banks and transnational data to empirically analyze the relationship between financial openness and bank interest margin.The results of both samples show that defacto financial openness or dejure financial openness is negatively correlates with bank spread.Bank characteristics also have a significant impact on bank interest margin.The non-interest income and cost-income ratio is negatively correlates with bank interest margin,while bank market power,operating costs has a significant positive impact on bank spread.Secondly,on the basis of existing research of the relationship between financial openness and bank risk-taking,in order to consider the influence of macro-prudential pocicy on bank risk-taking,this paper respectly uses samples of Chinese commcial banks and transitional data of 101 countries and regions to study the effect of financial openness and macro-prudential policy on bank risk-taking.The resusts of both sample show that financial opening increases bank risk-taking,macro-prudential policy can curb bank risk-taking,but the influence of different prudent policy tools is different.Financial Institution-Targted Instruments can significantly reduce the bank risk-taking,while Borrower-Targeted Instruments is less effective.Empirical studies with transnational data show that Limits on Domestic Currency Loans,Concentration Limits,Limits on Foreign Currency Loans,Limits on Interbank Exposures,Leverage Ratio and Levy on Financial Institutions has significant effect on curbing bank risk-taking.The effect of Debt-to-Income Ratio,Loan-to-Value Ratio Caps,General Countercyclical Capital Buffer,Dynamic Loan-Loss Provisioning and Time-Varying/Dynamic LoanLoss Provisioning has a not obvious effect bank risk-taking.While FX and/or Countercyclical Reserve Requirements can motivate bank to do excessive risk-taking.In addition,market power,bank size,non-interest income ratio,cost-income ratio,loanto-deposit ratio,profitability,capital adequacy,monetary policy also has impact on bank risk-taking.Thirdly,this paper takes the bank interest margin as the intermediary variable,take Chinese commercial banks and transnational data as samples respectively,uses the mediation effect method to empirically investigates the existence of the transmission channel that "the level of financial openness increases—the bank interest margin declines—the level of bank risk-taking increases",the results show that bank interest margin is part of the intermediary factor of the influence of financial openness on bank risk-taking and the theoretical hypothesis is supported by empirical evidence.Finally,this paper uses samples from 89 countries and regions(China included)to empirically analyzes the relationship between financial openness and banking crisis.The results show that financial openness significantly increases the probability of banking crisis.Some control variables also has an impact on banking crisis.Deposit insurance system and credit growth significantly increase the probability of banking crisis,while trade openness,actual economic growth rate and bank supervision degree is significantly negatively correlates with banking crisis.Further,in order to study the influence of different types of capital flows on the banking crisis,this paper subdivides defacto financial openess into foreign direct investment,portfolio debt and portfolio equity three aspects.The results show that foreign direct investment and portfolio equity does not significantly increase the probability of banking crisis,by contrast,portfolio debt significantly increases the probability of banking crisis,it shows that foreign direct investment and portfolio equity are relatively benign capital flows.