Research On The Relationship Between Real Estate Bubble And The Stability Of Banking System

The real estate market and the banking system have close relationship. Generally speaking, the development of real estate market needs the support of bank credit, while the volatility of the real estate market will counteract to the bank's stability. Relevant statistical data shows that real estate in our country particularly depended on banks' credit, which making the banking system had accumulated substantial financial risks. Once there is a collapse in the real estate market, the banking system would inevitably be affected. Therefore , it is important to sort out the trend of the real estate market and find out the relationship between the real estate bubble and the stability of banking system.In this paper, we estimated the "regime-switching models" of China's house price to explore whether speculative bubbles, fads or just fundamentals drive house price. The result suggested that there had been fads in the real estate market during February 1998 and July 2008.Then we analyzed the relationship between the real estate bubble and the stability of the banking system. We not only used the method of qualitative analysis but also used quantitative analysis. On one hand, we analyzed which factors impacted the supply and demand of the real estate market by using the panel data of 31 provinces in our country. We found the interest rate elasticity was very low while the bank credits, population and income had great influence on the supply and demand of the real estate market. On the other hand, through factor analysis, Granger Causality and co-integration test we found that the stability of the banking system had long-term impact on the real estate market while the bubble of the real estate market only had short-term effect on the stability of the banking system in China. At last, we put forward some suggestions on how to improve their relationships.