A Study On The Relationship Between Interest Rate Marketization And Commercial Bank Crisis

In June2012, People’s Bank of China expanded the floating range of deposit and loan’s rates, and subsequently triggered a fierce discussion of interest rate liberalization. It is expected that this policy will narrow net interest margin of Chinese commercial bank by14-18basis points, resulting in a decline in revenue of banking system. As is demonstrated by international experiences, the processes of interest rate deregulation are often accompanied by occurrence of banking crisis. So investigating the relationship between interest rate liberalization and banking crisis does construct to Chinese future interest rate reform.First, in the literature review, this paper summarizes the four major factors affecting the commercial banking crisis:macroeconomic environment, banking industry factors, financial industry factors and supervision factors. And then the perspective of this study is determine, that is based on the credit price and credit scale to explore the impact of interest rate liberalization to the banking crisis.This paper is through theoretical research, empirical analysis and case study three parts to illustrate influence of interest rate liberalization on banking crisis. The first part describes mechanism of the impact of the interest rate liberalization to credit price and scale, and the relationship between these impacts with the banking crisis. It is pointed that changes of credit price and scale will lead to interest rate risk, liquidity risk and credit risk, thus affecting the probability of occurrence of banking crisis.The second part is the empirical research of the banking crisis on interest rate liberalization, credit price and credit scale, also the core part of this paper. First, we regress credit price and credit scale on interest rate liberalization. Secondly, the empirical impact of interest rate market, credit price, credit size and other factors on banking crisis is considered. Then we discuss the relationship between supervision factors and the banking crisis. The empirical results are as follows:1. Only in the transition period that interest rate liberalization will increase the probability of banking crisis. And it had no impact on banking system in the long term.2The influence that interest rate liberalization pulls up price level of deposits and loans thereby triggering banking crisis is not obvious. But the impact of the credit scale to the probability of banking crisis is significant.3. The strengthening of the legal system and government transparency can effectively reduce the negative impact of the banking system, but the role of deposit insurance system is not significant.The third part sorted out developed countries, emerging market countries and Latin American countries’reform processes and results of interest rate liberalization. This paper found that only interest rate deregulation that suitable to each country’s economic development stage and their fundamental conditions that can effectively promote the development of financial sectors and economy. At last, this paper makes some suggestion in the perspective of both micro commercial banks and macro government about how China conducts future interest rate liberalization with less social cost.