Research On The Business Behavior Of Chinese Commercial Banks Under The Constraints Of Double Competition

Since the reform and opening up,the business environment of China's banking industry has undergone significant changes.On the one hand,the capital market is growing rapidly,and non bank financial institutions are also developing rapidly,resulting in external competition from the financial market for the banking industry,and the phenomenon of financial disintermediation is becoming more and more obvious;on the other hand,the number of banking institutions has also increased sharply,showing that large state-owned commercial banks are the main ones,With the joint-stock banks,urban commercial banks and rural commercial banks developing together,the inter-bank competition is becoming increasingly prominent.The competition from the intra banking industry and the financial market has become a unique phenomenon in China's financial development,which is obviously different from the competition situation faced by banking industry in other countries.The operation situation of banks presents new changes under the dual competition constraints.Therefore,it is of great practical significance to study the theoretical mechanism of dual competition affecting bank operation behavior,and it's meaningful to improve the operation level of banking industry.In terms of the impact of competition on the banking system,scholars have two opposite theoretical judgments.However,from the perspective of the reality of China's banking industry,on the one hand,the rapid growth of China's banking industry profits in recent years means that the banking industry has achieved relatively positive results;on the other hand,the accumulation of operational risks in the banking industry has also become an important factor to induce systemic risks,which means that there is an insufficient resource allocation of banking.Both the“theory of favorable competition" and "theory of unfavorable competition" are difficult to fully explain the fact that the operation of China's banking industry has changed.Therefore,the existing research lacks the analysis and judgment on the structural differentiation of bank operation behavior under the constraint of competition.Meanwhile,scholars usually ignore the competitive effect of financial disintermediation on banks,or only deal with different competition in a "segmented" way to identify the heterogeneous influence effect of different competition,thus ignoring the typical fact that there is coordination between interbank competition and financial disintermediation,so it is difficult to find that dual competition has a completely different impact mechanism from that of interbank competition.Finally,scholars have failed to answer why banks continue to tolerate the adverse consequences of competition,and whether there is a corresponding rectifying mechanism.This paper attempts to answer the above questions.Based on the analysis of the particularity of China's dual competition,the mutual strengthening and interweaving of dual competition will produce "chemical reaction",resulting in compound effect and superposition effect.First of all,when the two kinds of competition are intertwined,the competition among banks urges banks to compete for customer resources and form a stable relationship between banks and enterprises.However,the hold-up problem and soft budget constraint in relationship finance make both banks and enterprises have a demand for marketable financial instruments,leading to the obvious financial disintermediation.The compound effect of dual competition leads to significant changes in the management philosophy of banks,which makes financial disintermediation reverse the mechanism of peer competition on banks;secondly,when two kinds of competition develop independently and the government intervenes and controls the evolution of competition,both of them will promote banks to increase investment in state-owned sectors.The superposition effect will enlarge the financial exclusion of competition to non-state-owned sectors,but it will lead to changes in the franchise value of banks.In order to maintain the license value,the government will strengthen the guidance and supervision of banks,and then change the business philosophy of the banks.In view of this,this paper constructs a binary structure analysis framework.Both superposition effect and compound effect will change the feature of competition.The nature of competition will change from relationship finance competition to commercial finance competition.The form of competition will change from the stock competition to the incremental competition,the passive competition to the active competition,and the scale competition to the product innovation competition.The characteristics of competition have changed from complete quantity competition to quantity competition and price competition.Because the nature of competition changes,it will lead to significant changes in the structure of asset side,liability side and business side of the bank,and then affect the business objectives of the bank.On the one hand,the change of internal structure reduces the marginal income of banks,which makes their business objectives more inclined to maximize individual income.Under the driving of interests,banks will produce self profit seeking behavior,which makes the operation logic of banks change from "conservative and stablizing market share" to "radical and expanding market share".However,excessive profit-seeking behavior will be corrected by government intervention.On the other hand,the change of internal structure weakens the franchise value,and it turns the operation target to bearing the responsibility of macro financial support in order to maintain the charted value.The logic of bank operation changes from "focusing on income" to "focusing on safety",forming a stable operation behavior.However,the government's strong supervision will reduce the cost of loss,but it will increase the opportunity cost of capital.The logic of bank operation will change from "cost saving" to "hidden profit-seeking",and there will be "evasive" policy coping behavior.The main conclusions of this paper are as follows: First,dual competition has a structural impact on credit efficiency.Based on the synergetic effect and superposition effect of dual competition,the behavior of asset side and liability side of bank is differentiated,resulting credit sinking in asset side and financing innovation in liability side respectively.Then,the benefit of the credit output and the cost of the debt financing have obviously changed,and the credit efficiency of banking industry has the trend of structural change.The empirical results show that:(1)the dual competition promotes the credit profit efficiency,but inhibits the credit cost efficiency.The specific mechanism is that the dual competition improves the profit efficiency by increasing the loan interest rate elasticity,and reduces the cost efficiency by increasing the interest cost;(2)the heterogeneity analysis shows that the dual competition promotes the credit profit efficiency of the large state-owned banks more obviously,but inhibits the credit cost efficiency of the small and medium-sized banks more significantly;(3)the promotion of profit efficiency is stronger than the inhibition of credit cost efficiency,and banks can keep operating under the situation of the increasingly rising debt cost;(4)the government intervention will distort the positive effect of dual competition on credit profit efficiency,but the improvement of the financial system environment that will strengthen the positive effect of competition on credit efficiency.The real estate regulation policy will improve the credit efficiency.Second,the dual competition has a structural impact on the risk-taking behavior of banks.Based on the differences of different risk-taking behaviors,the superposition effect of dual competition leads to the instability of the structure of the banks' liability,and strengthens the active risk-taking behavior of banks to pursue profits through term mismatching;the amplification effect of dual competition will amplify the credit exclusion of small and medium-sized enterprises,which intensifies the credit rationing of small and medium-sized enterprises,and then introduces government intervention to alleviate the credit market failure.This strengthens the passive risk-taking behavior of banks under government intervention.The empirical analysis shows that:(1)the dual competition intensifies the active risk-taking behavior of banks,and the degree of term mismatching,which causes the proportion of risk weighted assets to increase;(2)the dual competition strengthens the passive risk-taking behavior of banks under the government intervention,but banks obtain explicit risk compensation and implicit guarantee from the government,resulting in the decrease of non-performing loan ratio;(3)dual competition will enlarge the proportion of banks' overall risk.Because the active and passive risk-taking behaviors under the constraints of dual competition make the operation of banks become more comprehensive,which leads to the change of risk forms,resulting the situation of the coexistence of institutional risk with insufficient capital and market risk with insufficient information transparency;(4)the mechanism analysis shows that the credit constraint has become an important mechanism for competition influencing risk-taking.The dual competition increases the amount that banks can lend through the relaxation of credit constraints,thus improving the level of the active risk-taking.However,the accumulation of risks resulting from the active risk-taking will lead to the tightening of credit constraints of banks,thus reducing the amount that banks can lend.Under the guarantee and intervention of the government,the credit is put into small and medium-sized enterprises and the level of the passive risk-taking is reduced.Third,dual competition has a structural impact on bank performance through on-balance-sheet and off-balance-sheet channels.Based on the differences of business characteristics between on-balance-sheet and off-balance-sheet,the coordination effect of dual competition leads to the expansion of credit business,and at the same time,it improves the operation ability and risk management ability by introducing fin-tech and risk-transferring mechanism;while the destruction effect of dual competition destroys the relationship lending between banks and enterprises,and the non interest business generated by “cross-selling” based on relationship financing becomes extremely unstable.The non-interest business has changed from "traditional type" to "the type of shadow banking",which aggravates the difficulty of management and increases the risk.The empirical research finds that:(1)the dual competition sinks into the credit long tail market through the on-balance-sheet channel,which achieves the growth of total interest income by the strategy of "making up the price by the volume",thus improving the operating performance and risk adjusted performance,and reducing the income volatility.The on-balance-sheet channel reflects the characteristics of Inclusive Finance;(2)the dual competition is derived from the destruction of the traditional non-interest business based on the relationship lending,which leads to the increase of shadow banking that is off-balance-sheet business,resulting in the decline of bank performance and risk adjusted performance,and the increase of income volatility.The off-balance-sheet channel reflects the concealment of shadow banking;(3)there is a certain connection between the two channels,that is,when the on-balance-sheet channel is limited by the government,the off-balance-sheet channel acts as the "cover" of the on-balance-sheet channel.Under the "accounts transferring" mechanism,the on-balance-sheet channel is transformed into the off-balance-sheet channel.Therefore,the purpose of doing non-interest business is not to achieve income diversification for improving the banks' performance,but to avoid the strong supervision of the on-balance-sheet credit business by eegulatory authorities.Banks can tolerate the negative impact of the off-balance-sheet channel on performance;(4)the dual competition is conducive to improving bank performance due to the high proportion of interest business.The innovations of this paper are as follows: first,the "chemical reaction" produced by dual competition makes it have the completely different mechanism from that of the interbank competition on banks,the synergy effect makes the fund market change from the seller's(supply-oriented)market under the inter-bank competition constraint to the buyer's(demand-oriented)market under the dual competition constraint by broadening the option of enterprise's financing channels,and the bank's operation concept has undergone a huge change from stable operation to radical expansion.The external competition from financial market characterized by financial disintermediation plays an important role.Therefore,it is necessary to analyze the changes of bank's operation behavior based on the background of China's dual competition.Second,there is a certain deviation from the structural operation reality of bank efficiency if we only judge the relationship between competition and efficiency from the perspective of the overall efficiency.We should analyze the structural differentiation of bank credit efficiency based on the heterogeneous behavior of bank asset side and liability side caused by dual competition.Attention should be paid to the simultaneous changes in the amount and price of deposits and loans caused by the "structural characteristics" and the "re-transfer characteristics of deposits" of the dual competition.Third,we should not judge the change of banks' risk only from the result-oriented perspective of the bank's overall risk,but should analyze the structural change of bank's risk-taking from the differences between the bank's active interest-seeking behavior and the passive coping behavior.Finally,the contribution of non-interest(off-balance-sheet)business to bank performance is not positive under dual competition constraints.It is just a "Flexibility" of interest(on-balance-sheet)business,which is difficult to lead to the diversification of bank income structure.This paper explains the correlation between off-balance-sheet and on-balance-sheet channels,and then answers why banks can tolerate the negative impact of non-interest business on banks' performance,because banks realize the interest arbitrage.Generally speaking,the conclusion of this paper means that we should increase the support of financial markets for small and medium-sized enterprises,promote the transformation of financial structure to financial market-oriented;we shoul deepen the reform of small and medium-sized banks,which can promote their financial supports for regional small and medium-sized enterprises;we should improve the corporate governance of banking system,reduce the threshold of social capital entering the banking industry and give full play to the comparative advantages of the banking system;we should imply fin-tech to improve the diversified operation efficiency of banks and enhance their operation competitiveness;...