| This article takes my country’s banking industry risks as an entry point to explore the functions and impacts of the financial derivatives market.my country’s commodity futures market has developed into one of the largest markets in the world,and its price discovery and risk management functions have been widely recognized.However,there is no broad consensus in my country on the role of the financial derivatives market in promoting the real economy.In addition,the development of my country’s financial derivatives market has also encountered some setbacks.For example,in 2015,stock index futures were blamed for the stock market crash,which led to strict restrictions on stock index futures trading.It was not until 2018 that the stock index futures gradually returned to normal.There is also the Bank of China’s “Crude Oil Treasure” incident in 2020,which has attracted widespread public attention.The incident also exposed my country’s commercial banks’ lack of adequate understanding of the high risks and complexity of financial derivatives transactions.This article mainly discusses the impact of financial derivatives transactions on commercial banks’ risk management and financial stability,and how financial institutions should regulate the use of financial derivatives.The "Futures and Derivatives Law" implemented in August 2022 provides important research ideas for this article.The law clarified the role of hedging and removed restrictions on hedging transactions.At the same time,it reasonably regulated speculative transactions and only imposed strict restrictions on excessive speculative transactions rather than prohibiting them.This creates a favorable legal environment for the healthy development of the financial derivatives market,and also provides a new perspective for the analysis of this article.This article starts from the function of financial derivatives trading and analyzes its impact on banking industry risks and its early warning effect.First,this article analyzes the impact of financial derivatives transactions on the bankruptcy risk of commercial banks.There are two motivations for commercial banks to engage in financial derivatives transactions: hedging and speculative arbitrage.These two motivations have different effects on commercial banks’ market risk taking.Hedging transactions can avoid price risks such as interest rates and exchange rates,thereby reducing commercial banks’ market risk exposure,which in turn helps reduce their own bankruptcy risks.Speculative arbitrage trading will increase the market risk exposure of commercial banks,but at the same time,it will also increase capital accumulation.Therefore,the impact of speculative arbitrage trading on the bankruptcy risk of commercial banks is uncertain.This is because an increase in capital accumulation can reduce the risk of bankruptcy,while an increase in market risk can increase the risk of bankruptcy.The ultimate impact depends on the relative contribution of speculative arbitrage trading to capital accumulation and market risk.In order to verify this theoretical analysis,this article uses a static panel model for empirical testing.Empirical results show that financial derivatives transactions reduce the bankruptcy risk of commercial banks and pass the robustness test.This shows that financial derivatives transactions of my country’s commercial banks are mainly to avoid market risks.When performing group regression on commercial banks with different ownership types,it was found that joint-stock commercial banks and large state-owned commercial banks mainly avoid market risks through financial derivatives transactions.However,the financial derivatives transactions of city commercial banks have no significant impact on bankruptcy risk.The possible reason is that they focus more on capital accumulation rather than avoiding market risks.In addition,this paper also tests the intermediary effect of capital adequacy ratio and the regulatory effect of monetary policy,and finds that commercial bank financial derivatives transactions reduce bankruptcy risks by increasing capital adequacy ratios,but the uncertainty of monetary policy will weaken its impact on bankruptcy.The impact of risk.Secondly,this article analyzes the impact of financial derivative transactions on commercial banks’ risk taking.In the part about the impact of financial derivatives transactions on the bankruptcy risk of commercial banks,we came to the conclusion that commercial banks participate in financial derivatives transactions mainly to avoid market risks.Therefore,commercial banks’ financial derivatives transactions should reduce their own risk taking.However,hedging transactions may also affect commercial banks’ credit risk exposure.Since hedging transactions can increase the capital adequacy ratio of commercial banks to meet or exceed regulatory requirements,commercial banks may be inclined to expand their loan sizes and thus assume more credit risks.It can be seen that financial derivatives transactions may increase the risk-taking of commercial banks.In order to further verify the above theoretical analysis,this article uses a static panel model for empirical testing.Empirical results show that financial derivative transactions increase the risk-taking of commercial banks and pass the robustness test.When conducting group regression on commercial banks with different property rights types,it was found that there are differences in the impact of financial derivatives transactions on the risk-taking of commercial banks with different property rights types.Joint-stock and city commercial banks are more inclined to use interest rate derivatives transactions to increase risk-taking,while Joint-stock and large commercial banks are more likely to use exchange rate derivatives transactions to increase risk taking.In addition,this paper examines the intermediary effect of capital adequacy ratio and bank loans,and finds that financial derivative transactions expand loan scale by increasing capital adequacy ratio,thereby increasing the risk-taking of commercial banks.Thirdly,this article explores the impact of financial derivatives transactions on systemic risks in the banking industry.Financial derivatives transactions can help commercial banks diversify and transfer risks.At the same time,they also form complex network relationships between commercial banks and other market participants,thereby establishing a channel for risk contagion.Especially for systemically important commercial banks,they are large in scale and involve many counterparties.Once they go bankrupt,it will have a serious impact on the entire banking industry.This article uses the expected capital shortfall size of a single bank to measure the systemic risk of the banking industry,because this indicator reflects the amount of direct losses caused by the bankruptcy of a bank to its counterparties.The higher the amount,the more likely it is to trigger a "domino" effect.The previous article analyzed the impact mechanism of financial derivatives transactions on the bankruptcy risk and risk-taking of commercial banks.It mainly reduces bankruptcy risks and increases risk-taking by increasing the capital adequacy ratio.Therefore,this article assumes that financial derivatives transactions will increase the systemic risk of the banking industry by expanding the scale of bank loans.In order to verify the above theoretical analysis,this article uses a static panel model for empirical testing.The empirical results show that financial derivative transactions increase the systemic risk of the banking industry and pass the robustness test.When conducting group regression on commercial banks with different property rights types,it was found that commercial banks with different property rights types have different impacts on systemic risks in the banking industry.Financial derivatives transactions of joint-stock and large state-owned commercial banks significantly increase systemic risks in the banking industry.In addition,this paper also tests the intermediary effect of capital adequacy ratio and bank loans,and finds that financial derivative transactions increase the systemic risk of the banking industry by increasing capital adequacy ratio and loan size.Finally,this article explores the early warning effect of exchange financial derivatives trading on systemic risks in the banking industry.Since financial derivatives transactions of commercial banks tend to increase systemic risks in the banking industry,if the occurrence of systemic risks in the banking industry can be effectively warned,it will be of huge benefit to both the commercial banks themselves and the real economy.Therefore,this article examines whether exchange stock index derivatives trading has the effect of early warning of systemic risks in the banking industry.The theoretical basis of the analysis is the price discovery function of financial derivatives trading.The price discovery function means that the financial derivatives market can reflect the true value of the underlying assets more accurately than the spot market due to its low transaction costs and fast information transmission.The price discovery function of the commodity futures market has been widely verified,but the price discovery function of the financial derivatives market has not been fully studied.This is related to the small number of types of financial derivatives on the market in my country.This article uses a combination of Logit model and neural network algorithm model to verify whether the data related to Shanghai Stock Exchange 50 ETF options can provide early warning of systemic risks in the banking industry.The banking industry systemic risk index is constructed using the banking industry index issued by CITIC Securities,and 1.5 standard deviations lower than the annual average value of the banking industry index is used as the proxy variable for banking industry systemic risk.In the first step,the early warning indicators are screened through the Logit model,and the early warning effect is initially tested through the Logit model.In the second step,the neural network algorithm model is used to further test the filtered data.The third step is to use the same method to conduct another early warning test on the individual risks of the sample banks.Finally,it was concluded that on-exchange financial derivatives trading has the function of early warning of systemic risks in the banking industry.This article starts from the functional perspective of financial derivatives transactions and analyzes the impact and early warning effect of financial derivatives transactions on banking industry risks.This new perspective helps understand how financial derivatives markets serve the real economy.This article is of great value at both theoretical and practical levels.At the theoretical level,on the one hand,this article expands the theoretical literature on the impact and early warning effect of financial derivatives transactions on banking industry risks,and draws a new research conclusion,that is,financial derivatives transactions can reduce the bankruptcy risk of commercial banks and increase Its risk-taking level improves the intermediary efficiency of commercial banks and lays the foundation for subsequent in-depth research.On the other hand,this article enriches the existing research on the systemic risk early warning model of the banking industry and integrates exchange stock index derivatives trading.The data is incorporated into the banking industry’s systemic risk early warning model,which is innovative.At the practical level,on the one hand,the research conclusions of this article have important guiding significance for how financial institutions use financial derivatives.Financial institutions can effectively reduce their own bankruptcy risks by hedging through financial derivatives transactions,and can effectively increase their capital accumulation by conducting appropriate speculative arbitrage transactions,but excessive speculation must be prevented;on the other hand,it is necessary for regulatory agencies to monitor and control systemic Risk provides new ideas and methods.The empirical results of this article show that financial derivatives transactions of large state-owned commercial banks and joint-stock banks will increase the systemic risks of the banking industry.Therefore,the risks of these financial institutions should be focused on.At the same time,this article also provides regulatory authorities with new tools for monitoring systemic risks in the banking industry. |
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