Institutional Analysis And Empirical Research Of China's Banking Fragility

The banking system is the core of financial system. the vulnerability of Chinese banking system, as a hot issue in financial sector, is crucial to our national economy, and the huge risk it accumulated is the unavoidable topic when examining China's economy. China's financial system is in phase of changing substantially currently, which increased the uncertainty. Especially after the full open of Chinese banking industry it will face more severe challenges, so safeguard for banking system's stability has become a crucial problem related to the steady development of Chinese future economy. In this background, this paper chooses the vulnerability of the banking system in open economy as the object, forms a complete theoretical framework including the theory, formation mechanism and governance responses of the banking system's vulnerability, and provides some useful support for the theory and practical policy recommendations to pursuit the stability of the banking system.This paper first introduces deeply the vulnerability of the banking system,including the definition, basic theory and the relationship of the vulnerability, banking risk and banking crises.Then analyzes internal and external formation mechanism of the banking system, from the aspect of macro, micro formation mechanism. After that, it carries on empirical analysis of the status, measure and causes of banking system's vulnerability, including the quantitative analysis and diagnosis of the model posed by non-performing loan ratio,National loan growth ratio, inflation ratio, capital adequacy ratio; selects out the indicators for the measurement of vulnerability based on international research; it has also collected samples data of 1987-2007,using Logit, probit models and Granger causality test,to do empirical analysis on the real causes of the Bank's vulnerability. Empirical results show that causal relationship exists between some macro-economic indicators, financial indicators and the vulnerability of state-owned commercial banks, while the financial indicators have higher impact than macroeconomic indicators. On the basis of the above, it provides governance and prevention policy recommendations from the following six aspects: speeding up the reform of property rights system, set up scientific corporate governance structure, strengthen self-operations and self-management of commercial banking, play the full role of market constraints, improve banking supervision system, improving the system construction, improving the financial ecology, set up good banks operating environment. Directed by systematic approach, this paper combines normative analysis and empirical analysis, macro analysis and micro-analysis; also uses research methods including Logit, probit, Granger empirical econometric model.