Credit Expansion, Asset Price Fluctuation And Financial Stability

With the rapid development of financial markets, especially America subprime mortgage crisis occur, the fluctuation of asset prices and the resulting financial instability problem has been attention of people from all walks of life. In recent years, China’s real estate market and stock market performance is seriously out of the real economy, having a considerable degree of asset price bubbles, since2008, stocks and real estate prices have been volatile, especially the stock market, the value of the Shanghai stock market has shrunk by half. This phenomenon makes us to think of Japan’s lost decade, the Southeast Asian financial crisis and the U.S. subprime mortgage crisis. In order to ensure the healthy development of China’s economic and to prevent asset price fluctuations to cause financial instability, we study the mechanism of fluctuations in asset prices affect financial stability has an important practical significance.It is generally believed that commercial bank credit expansion has an important influence on asset price volatility, because of the nature of commercial banks is seeking profit, they tend to invest in high-profit areas, so that asset prices are rising to a very high level, and promoting the formation of asset price bubbles. At the same time, fluctuations in asset prices will in turn affect credit supply and demand of bank. When the economy begins to stagnate and affect investors’ confidence in investing, asset price inflation will lose power and fall, even seriously fall. Analyzed from the perspective of asset prices affect bank stability, asset prices will affect the bank’s capital adequacy ratio, the decline of asset prices will increase banks’ bad loans and reduce bank’s capital, thereby affecting credit behavior and the stability of financial system. In addition, the sharp decline in asset prices will have a negative impact on the business environment of commercial banks, so it would easily lead to runs on, made bank broken and lead to financial instability.In addition, this paper empirically analyzes the relationship of financial institutions loan balance and the average commercial housing sales price index, and take the U.S. subprime mortgage crisis for example, it analyze the causes of the U.S. subprime mortgage crisis and impact on financial stability. Finally, it sum up and put forward some policy recommendations.