A Empirical Research Of Bank Competition And Bank Stability In China

The relationship between banking competition and banking system’s stability has been a focus of theories, with the constant deepening of economic globalization. China’s banking industry is gradually liberalized, with foreign banks speeding up shares of Chinese banks and domestic banks setting up branches in foreign countries. Thus it has been enhancing the degree of competition in bank industry and with this, the Chinese banking system’s stability is put forward a huge challenge, because a country’s financial system is a very important part of our country. So maintaining the stability of banking system has important role in the financial security of our country.The stability of the banking system, for the entire banking system, refers to the bank has the most sustainable capacity of solvency, and continue with the capacity. This article adopting the John Lin Jie Ryan’s definition about the stability of banks, emphasizes the dynamic solvency, profitability and profit ability for the long run. The stability of the banking system, refers to the most banks in entire banking system have a high operation efficiency and good currency (or pay) ability, and over time, even in the event of great emergency cases, it still has this ability in case of withstanding the occurrence of unexpected events.This paper is using of panel data in the period of1996-2009on the basis of the domestic and foreign research status on bank stability, combined with China’s banking system reform process, using the method of literature review and the multiple regression analysis, in-depth analysis of the impact of China’s banking stability main factors, preliminary compose built our country bank system stability analysis framework. One of the bank’s competitiveness as a key variable, by adding different control variables, including macroeconomic variables and bank specific characteristic variables, using stepwise regression method, empirical research with a focus on the banking competition and banking stability and the relationship between. The results show that:first, in all equations of explanatory variables, core bank competition and bank stability showed a positive correlation, the bank competitive square and the stability of the bank presents the two power relations, namely: the inverted U relation. This and related research conclusion. That is to say, when the bank competitive in a certain range, the bank’s competition is more intense, the stability of the banking system is better, when the bank competition exceeds a certain limit, such as banks continue to accelerate the construction of branch network, and even the development of overseas market, the stability of the banking system will gradually decline. For the banking system, the excessive competition necessarily leads to bank operating costs and increased risk of, a country’s financial system under the impact, the stability of the banking system is declining. In second, the macro economic variables on the stability of the bank has significant influence. Among them, GDP growth rate on the stability of the bank has a significant positive effect, GDP increase rate reflects a country’s overall economic development level, when the GDP growth rate is high, the bank system of our country showed strong stability, performance for the bank anti-risk ability enhancement, capital adequacy rate, non-performing loan ratio indicators are in line with the regulatory requirements; inflation rate CPI and the money supply M2growth rate reflects the Chinese monetary policy affects the economy level, the empirical results show that the stability of the bank is negatively correlated, as China’s overall price level is higher, China’s banking system stability is influenced by the degree of threat and challenge, the financial market turmoil on the stability of the bank will cause a certain degree of impact. Hope that through this research, not only enrich the existing on bank stability theory hypothesis, but also to improve the banking system stability in China policy specified to provide suggestions and references. Finally, we according to the empirical conclusion, put forward about the improvement of China’s banking stability is the proposal of a few policy: first to reduce the ratio of non-performing assets, second sound internal control system, third to create a financial safety net, fourth strengthen the market restraint function.