The Influence Study Of The Capital Account Liberalization On The Stability Of China’s Banking System

Capital account liberalization has a double-edged sword effect. That means itbrings the economic and financial development, at the same time, may create asignificant impact on the financial system, bearing the brunt of the banks as the coreof the financial system. The financial crisis is mostly caused by the banking crisis,such as the Asian financial crisis. China survived the crisis is due to China’simplementation of more stringent capital controls, it can be said that capital controlsset up a barrier to international hot money and currency crisis.After the capital account liberalization, international capital flows intensified,will affect a country’s banks and even financial stability through various channels.Capital flows caused by capital account liberalization, affecting the exchange ratestability, result exchange rate risk and affect the stability of the banking system. Thesame time, the vast majority of large inflows of capital into the banking systemdirectly or indirectly, cause the generation of bank credit expansion and asset pricebubbles, increasing the probability of banks’ bad assets, thereby affecting the stabilityof the banking system. In addition, the process of capital account liberalization isoften accompanied by the entry of foreign banks, foreign banks enter the bankingsystem and improve the competitiveness of the domestic bank while increase theinstability of the bank. Thus study China’s capital account gradually opening up thesignificance of a stable banking system.China’s capital account liberalization has made great progress, achieved some ofthe projects basic convertible and parts of convertible, but the capital controls are stillrelatively high. While the capital adequacy ratio of China’s banks reached commoninternational standard, and non-performing loan ratio also continue to decline, theyare still the potential factors affecting the banking stability, coupled with the Bankstructure and banking risk management, capital account liberalization will have acertain impact on China’s banking system stability. The empirical results also showthat capital account liberalization produces the exchange rate risk, liquidity risk andcredit risk, influencing the bank stability. Therefore, it’s necessary to promote capitalaccount openness carefully on the premise of grasping the progressive and rationality,choosing optimal path, in order to reduce the risk facing banks in the open process.It’s also necessary to use fiscal and monetary policies timely and rationally, increasethe flexibility of the exchange rate and accelerate market-oriented interest rate reform to create conducive to bank stability in macroeconomic conditions. Meanwhile, Chinashould build the security system of banking stability by strengthening the bankingsystem, increasing financial supervision and establishing the deposit insurancesystem.