Research On The Relationship Among Commercial Banks’Efficiency, Capital And Risk In China

Since comprehensive outbreak of the American subprime mortgage crisis, morescholars have began to focus on the relationship between efficiency and risk offinancial institutions. Commercial banks as one of the most important financialinstitutions are related to the long-term stability of a country’s economy. Therefore,the study on the relationship among efficiency, capital and risk of commercial bankshas a very important practical significance.This paper uses data envelopment analysis (DEA) to measure cost efficiencyand revenue efficiency of the37commercial banks in China from the year2005to2010. We find that the cost efficiency and revenue efficiency of joint-stockcommercial banks are the highest. Those of city commercial banks rank second.Those of state-owned commercial banks are the lowest. On this basis, we build asimultaneous equation model, and use the three-stage least squares method (3SLS) toestimate the relationship among efficiency, capital and risk of China’s commercialbanks. we draw the following conclusions:First, the relationship between efficiency and risk is positively correlated eachother. Second, in revenue efficiency, the relationship between risk and capital isnegatively correlated each other. But, in cost efficiency, the relationship is negativelycorrelated. Third, the relationship between capital and revenue efficiency ispositively correlated each other. But, the relationship between capital and costefficiency is negatively correlated. Fourth, the higher the profitability, the higher theefficiency and the more adequate the capital. Fifth, the increase of the rate of non-performing loans of commercial banks in China will result in reduced efficiencyand increased risk. Sixth, the nature of ownership of the commercial banks of Chinahas a significant effect on efficiency, capital and risk. Seventh, the scale of a bankhas a significant effect on efficiency, capital and risk, too.Based on the above analysis, this paper argues that we need to pay attention tothe following points:First, we should grasp the equilibrium point between efficiency and risk. Second,we should increase the core capital and supplementary capital, and reduce the riskassets. Third, we should adjust the size of assets of the commercial banks in Chinaeffectively.