A Study On Soft-Budget Constraint Of State-Owned Commercial Banks In Economic Transition

The term of soft-budget constraint behavior and the relevant theories build aconstructive theoretical framework to analyze the production and decrease thenon-performing loans. This paper establishes a regression mode to analyze theinfluence of central and local government subsidy on commercial banks and theirbehaviors. On the background that state-owned commercial banks enter capitalmarket home and abroad, it is significant to analyze stiffening mechanism ofsoft-budget constraint.This paper is divided into four parts to analyze the soft budget constraint andbehavior of the banks. The first part is to introduce the concept of soft budgetconstraint and the formal theoretical literature and to demonstrate the mentalityand the method of the research. The second part is to present the institutuionwhere the soft budget constraint behaviors of the banks occur on the facet ofproprietorship, banking internal governance, subsidy from local and centralgovernments as well as the cause that the behaviors underlie by introducing thetraditional theories and the mode of insider control from a different point of view.The third part is to prove the existence of expectation and forming mechanism ofsoft budget constraint by econometrics measures and empirical approach. Besides,the paper also indicates transformation of Chinese state-owned commercial banksafter entity reform. The last part is to put forward some policies totackle the softbudget constraint problem, especially enhancing the corporate governce ofcommercial banks.