Barriers To Entry In Banking Industry And The Reasonable Way For Private Capital To Enter This Industry

For more and more documents have been issued to promote bank privatization, private capital take part in this reformation with a lot of enthusiasm. Some enterprises even apply for a completely new private bank, like Suning, etc. But is this a easy job or what is the reasonable way to join in this reformation is still unknown. So this paper concentrates on this two topics and tries best to get answers.At the beginning, this paper reviews the development of bank business from the perspective of SCP, including the structure, behavior, performance of this industry. Besides, it also has a quick look at the investment in bank business for private capital. In order to get knowledge of the barriers to entry theoretically in banking,this paper studies the product differentiation, economies of scale, necessary cost, institutional barriers of this industry in the following. And the result indicates that, the biggest barrier comes from policy constraints. In this situation,does private capital should participate in this industry is still uncertain,and the empirical investigation will be considered to solve it.Thus in the following two parts,this paper will testify which is a better way between strategic investment and set up a new agency with the method of panel regression. Richard.C.Levin’s model offers two indicators to explain whether the industry is expanding or shrinking, scale efficiency and the difference between income elasticity and price elasticity. Finally,the result in panel regression shows that the banking will shrink,the number of enterprises in this industry will reduce.And the private capital will face great pressure if it chooses to set up a new agency in this industry.The other part mainly focus on strategic investment in banking with the method of panel regression too.For strategic investment is a clever way to avoid barriers to entry,an efficient way to testify whether it is a right choice is to observe the relationship between ownership structure and business performance.According to this paper’s result,strategic investment can improve business performance through influencing ownership structure,and the most significant finance indicators be influenced are earnings ratio and non-performing loan ratio. In conclusion,this paper agrees on private capital should invest in banking strategically and avoid barriers to entry.At the end,some useful advices have been proposed from the perspective of private capital,banking business and supervision department.