Research On The Factors That Influencing The Risk Of Bank Holding Companies

The five years’ protection period after China’s accession to the WTO ended in December2006. Facing the fierce competition brought by foreign banks in forms of universal banks or financial holding companies, financial institutions in China apparently can not adapt to the trend of international mixed operation in finance because of the ongoing separating operation pattern. With the business advantage of universal bank or financial holding company, foreign banks have virtue to attract customers, however, most financial institutions in our country still execute separate operation model, which largely weaken its competitiveness.In this paper, risk of bank holding companies will be analyzed step by step, and based on the result of analysis, what risks should be focused on as bank holding companies will be proposed.To begin with, the first part expounds the definition of the financial holding company. Then explain the formation and development of financial holding companies in China, separately from modern portfolio theory, transaction cost theory, function point theory, institutional change and economic analysis theory. In this article, especially, the basic thought of the modern portfolio theory is the main theoretical basis to measure the risk of bank holding companies in our country.The second part analyze the present situation of financial holding companies in our country and then classify, finally determine bank holding companies to be the object of the research, which are built with commercial Banks as the main body. Then, five banks in our country are determined which meet the the definition of our bank holding company, and their current diversification of business is analyzed.The third part is the most important part of this article, including the content of the chapter4. In the fourth chapter, according to the modern portfolio theory, the standard deviation of expected benefits is used as a measure of the level of risk. Then comparatively study the difference between bank holding companies and other kind of banks. Afterwards, the factors that influence risk of bank holding companies were analyzed, with a preliminary regression model built. Finally, use the stepwise regression method to revise the preliminary regression model, with purposes to find out the which factors have the biggest impact on risk bank holding companies’risk and verify whether the diversification of business has a major impact on the risk of bank holding companies.The fourth part includes chapter5, according to the results of the data analysis in the third part, corresponding proposals are put forward about the development of business diversification for bank holding companies:actively improve degree of business diversification, strengthening the loan quality management and enhance the capital management, strictly control capital adequacy ratio, etc. The main contribution and innovation of this paper lies in:Regarding a certain bank holding company as an investment portfolio involved in different financial fields, according to the expansion of the risk measurement methods, use the standard deviation and variance of return on equity to measure the risk quantitatively of bank holding companies in China.Synthesize other kinds of risk factors to investigate the influence that business diversification has on the overall risk of bank holding company. Compared with other factors to judge whether business diversification of bank holding company has significant influence on the overall risk.