Local Government Intervention And The Development Of Banking

With the deepen reform in China, the course of China’s financial development is facing many challenges. How the Chinese financial industry especially the banking industry maintains steady sustainable development in the fierce market is an inevitable important topic in the current economic development. In recent years, the local government’s main status of continuous improvement, not only in system shunt period become incomplete planning and imperfect market links, but also become region economy growth and social stability strong impetus. The local government can play a strong role in local economic development, resource allocation and income distribution adjustment. This role is called the intervention of the local government. The banking industry is facing the great historic change. Study on the effect of local government intervention on the development of banking is undoubtedly of great significance under the big background of the transition of Chinese economy structure adjustment.Based on the above conclusions, this essay summarizes the domestic and foreign existing research results, using the theoretical research, current situation analysis and empirical research methods and analyses the correlation between economic functions of local governments and the development of banking. Based on the29provinces’ panel data of1996-2010years, this paper spreads out detailed econometric analysis on the effect of local government intervention on the development of banking. Our empirical results show that:the effect of local government’s economic functions on the banking development is structural. The local financial policy measured by fiscal expenditure has a role in promoting for banking industry scale, but the effect is not significant in the longer term. The local government’s investment policy measured by state-owned economy investment is not significant on the development of banking industry. The local government’s intervention in the market measured by expenditure on administration management is not significant on the banking industry development, and also impedes the flow of manpower capital. Finally the essay put forward some suggestions in the development of the banking.This article mainly includes the following contents. The first chapter is introduction. It introduces the background, the research significance, research framework structure arrangement and innovation. The second chapter is the theoretical part, presenting a literature review and theory. The third chapter is the analysis of the present situation, describing the current situation of local government’s economic function and banking development. The fourth chapter is the empirical study, using the national and Regional Panel Data to analyze the effect of local government intervention on the development of banking. The fifth chapter is the research conclusion and policy recommendations, summarizing main point of view, and advising the government to play a positive role on the development of banking, to make efforts to reduce the negative effects, in order to better promote the functions on the banking industry development positively.