The Study On China’s Banking Fragility Wihe The Perspective Of International Capital Flow

It has been proved that the history of the outbreak of many financial crises haveinseparable relationship with frequent international capital flows. With theacceleration of the process of financial liberalization，the access of internationalcapital into our country have shown a diversity of channels，in the context of thefinancial crisis rapid flow of international capital will threat the security of ourfinancial system. Therefore， the study on the impact of international capital flows onthe vulnerability of the banking system will enhance the awareness of the means tomaintain the stability of China’s financial system，and has an important practicalsignificance.Based on the concept and theory of banking fragility，this paper use qualitativeand quantitative analysis，study the relationship between of international capital flowsand banking fragility. First, this paper discusses the mechanism of the internationalcapital flows impact on banking fragility, including directly change the structure ofthe balance sheet, exacerbate moral hazard，and indirectly change asset prices as wellas exchange rates，interest rates. Secondly, drawing on the experience of the researchachievement in the home and abroad, this paper employs the dynamic factor analysisand constructs the index of the bank system fragility in China. According to theempirical test on the data during1991-2010，it reveals that the bank system fragilityof China declined. This paper using Granger causality test and Johansen cointegrationtest model，studies the impact of international capital flows on the fragility of banksystem. The results show that international capital flows have a certain influence onthe bank system fragility. The main performance is that increase of foreign directinvestment and strengthening of the capacity to repay foreign debt led to bankingfragility decline, financial liberalization led to banking fragility rise. Finally，based onempirical analysis，this paper presents policy recommendations in order to weakenbanking fragility and maintain banking stability.