The Research On The Effect Of Risk Restraint Of Bank's Franchise Value

In traditional theory, the bank franchise value is net present value which is excess revenue of the monopoly gained from imperfect competitive market through its own operations. The constituent elements of bank franchise value reflects in both market-related and banking these two related areas: market-related factor is that the banking sector and access restrictions, such as monopoly control of interest rates, and bank-related factor is that banks operate their own level of goodwill and other factors. The foreign research findings generally believe that the banking franchise value has very strong constraint on the bank's excessive risk behavior, and by which the regulators and the banks can make healthy and stable operation in the banking industry. According to the analysis of the banking franchise value, understanding in depth that of the specific impact of the factors, regulators can measure the supervision which is inadequate or not and the issues of over-regulation depending on it, and the banks can use it as a more effective measure indicators on the bank's operating performance. Baced on foreign related theory and empirical research, this paper focuses on the effect of risk restraint of China's banking franchise value. Hence comes to the preliminary conclusion, and there of provides policy recommendations for banks and the board of supervising.This paper starts with the definition of the bank franchise value, depending on the annual data of sample banks from 1998 to 2007, to analyze the effect of risk restraint of the bank's franchise value from theoretical and empirical perspective. Results from both studies, the bank franchise value has strong effect of restraint on the bank's risk behavior, that is, for the banks with the higher franchise value, the increasing option is of great value. Even if the board of supervising has a deregulation, instead of not taking excessive risk, more inclined to consider innovative to reap more complete pricing power, and carry on decentralization of investment to reap the maximum profits, meanwhile, avoiding losing the higher banking franchise value after business failure. While those banks with lower franchise value, driven by the psychology of gambling, will weigh up the pros and cons. Once the pretium periculi is greater after successful speculative operation than losing the banking franchise value after unsccessful speculative operation, they will be inclined not to consider innovative risk factors, but simple rise in business scale and increase the risk management motivation.Then, if the bank's franchise value is too low, it will directly increase the bank's risk motive. According to the latest data, this paper not only takes an empirical testing on the effect of risk restraint to the banking franchise value, but also provides the board of supervising with policy proposals, which is of great significance on promoting both the stable operation on China's banking industry and the effective supervision for board of supervising.