Research On Chinese Banking System Fragility

Financial liberation has already become a trend in developing countries, but financial liberation exposes endogenous instability and fragility of the financial system. After joining WTO, China would open the domestic bank market in five years, and open capital market soon. Liberalization of interest rate and exchange rate has ranked the schedule of Chinese finance reformation, which means that Chinese financial liberation has begun in an all-around way. According to the experiences of other new industrialized countries, we know that banking system fragility has restricted the economic development in the process of financial liberation. We study banking system fragility in order to make an overall understanding of Chinese banking system and to analyze it systematically. Then we can propose how China keeps banking stability when facing financial deepen and financial liberalization.This paper studies the relationships between banking system and the government, banking system fragility and the macro economy, banking system fragility and financial liberation.Firstly, this paper defines banking system fragility, and reviews its behavior since the reformation and opening up of banking system. Secondly, this paper calculates out the banking system fragility index using Factor Analyse, and finds that the banking system fragility index of 1995 is a boundary during the last twenty years. Thirdly, this paper examines the influence of macro economy on banking system fragility. Finally, this paper puts forward the policy recommendations according to the researches mentioned above.