Analyzing The Influence Of Banking Diversification On The Systematic Bank Crisis

With the rapid development of the global capital markets, the profit margins ofcommercial banks are being squeezed, because of the rapid growth of the non-bankfinancial institutions. The problem, how to stand out in financial institutions, hasbecome one of the primary considerations of all the banks. The diversification ofbanking business and service seems to be the magic weapon for winning. In order toboost profitability, commercial banks, such as Deutsche bank and Citibank, strive toexpand business especially the non-traditional business.At present, the diversification of banking business seems to have become thetendency of modern banks’ business. What does the diversification influence on thefinancial stability? In the context of different supervision systems and regulations allaround the world, are banking diversification beneficial to the stability of the financialsystem? To answer these questions，the paper focuses on the influence of bankingbusiness diversification on systematic banking crisis.This paper studies the above questions from the theoretical and empirical aspects.In theory, the article puts forward the research contents based on present studies, definesthe concept and briefly analyzes theories of currency crisis.In evidence, the article makes empirical research with the data of the systemicbanking crises lasts from1980to2010including the newest financial crisis among111countries. The measures of systemic banking crises include the likelihood of anoccurrence of crises, the duration, the output loss, fiscal bailout funds. The explanatoryvariables include the restrictions of bank activities, the limit of majority shares of banksand other companies, the factors of banking industry and system. Firstly, the paperanalyzes the influence of explanatory variables on the probability of occurrence bylogistic model; secondly, it employs the truncated model to analyze the impact ofvariables on duration; lastly, it empirically analyzes effects of variables on output lossand fiscal bailouts by multiple linear regression methods.Conclusions of the paper are as follows:First, the strict limitation of banking activities reduces the probabilities of systemicbanking crises and the duration. At the same time, the strict limitations reduce the fiscalbailouts. Second, the deregulation of non-bank financial enterprise holding companiesincreases the probabilities of systemic banking crises and the duration.Third, from a long-term perspective, the probabilities of systemic banking crisesgrow with the drop of banking centralization, and the duration also lasts longer. Inaddition, the banking nationalization and the deposit insurance increase the bankingsystem vulnerability.