The Research On The Relation Between Local Government And Local Commercial Banks

Local commercial banks are an important component of China’s financial system, playing an important role in the city finance. Most local commercial banks are founded by the local government, so they had many traces of intervention and influence from local governments. Behavior of local governments’impact on the development of local commercial banks would be obviously noticed. The relation between local governments and local commercial banks is very complex. It would have different performance at different times.In this study, the article discussed and analyzed the past and present relationship between the local governments and the local commercial banks in China. And taking Wenzhou as an example, I analysis the positive and negative effects between them. In the theoretical analysis, combined with theory of credit risk management, corporate governance, ownership boundaries, the supply of public goods, the in-depth dialysis between the two are taken out, and found that the local government and local commercial banks, the optimal level of interaction not only concerns with the local economic development level, financial situation, government policy on the effectiveness of regional economic development and other external economic factors, but also with some micro-factors such as the status of the bank’s corporate governance structure, the bank’s risk control, the viability of managers.Taking34banks as the sample, I find the evidence that there is a positive correlation between performances with the ratios of state shares and when the equity ratio exceeds50%the banks’ performances will be positively impacted, However, due to the dominance in the government, the introduction of other corporate and individual capital on the internal governance structure is not obvious. Considering the interaction with Wenzhou Municipal People’s Government for the Bank of Wenzhou, both positive and negative behavioral effects between the two are specifically interoperated.Finally, on the basis of the previous text, the relationship between the local governments and the commercial banks is properly located. The optimal level of interaction between the two could not be generalize, according to the local macro-and micro-environment of the specific situation in a timely manner to promote the reform of local commercial banks relationship with the Government. Finally, I propose some policy suggestions on local commercial banks in credit risk management, corporate governance and changes in the functions of local government and other aspects related to this issue.