A Study On Listed Banks’ Risk-Taking In China

The sub-prime crisis in2008and European debt-crisis in2010warned:the government and market must pay attentions to the risk-taking of financial institutions, the risk behavior or choice from the listed commercial banks occurred frequently in reality because of the adverse incentive and moral risk. With the depth of interest rate marketization in China and the change of commercial banks’business environment, commercial banks in China is facing the greater shock on market volatility, that can brings a little of uncertainty to the internal control operation. For example, the "liquidity shortage" that happened in July2013was essentially the result of banks’high risk-taking. So it is significant to study Chinese commercial banks’risk-taking in the new situation.This paper cites comprehensive some cases and comparative datas, and used empirical method to study the market structure and the effects of risk-taking shock from Chinese commercial banks.Firstly, this paper analyzes the theoretical foundation. On the theory of the commercial banks’market structure, the paper criticizes the defects of four types market structure theories from these classical ideas, for example, the theories which simply divides on the market are not suitable for Chinese banking; and the banking’judgment also has a certain degree of deviation. On the contrary, the quantitative measurement on the monopoly level of market structure in Chinese banking is more realistic. On the theory of commercial banks’risk-taking, the paper presents some views of "moral hazard" and "diseconomies of scale" from the dominating banks, such as the "moral hazard" and diseconomies of the dominating banks (SE=1is the breakthrough point between economies and diseconomies)Secondly, this paper summaries respectively the researches including the market structure of the banking, risk-taking measurement, the influence factors, in order to comb the existing researches more comprehensive and systematic results. That can find a breakthrough. Because the studies on the banks’risk-taking under the market structure are relatively small, and there are some deficiencies, the paper has certain theoretical innovations.Thirdly, this paper focuses on the market structure of16listed-banks in China. By comparing the methods of structural and non-structural measurement, this paper use the Market-concentration method (CRn)、 Herfindahl index (HHI) and Entropy index (El) on studying the market structure of commercial banks, to reflect really the market information. The empirical study shows that, the market dominance of five major state-owned commercial banks is a steady downward trend since2006; the banks’monopoly level continues to decrease overall in fluctuation, but the competitive level is rising in fluctuation. Further the banks’ market structure in China is transforming from "monopoly is greater than competition" in2006to "competition is greater than the monopoly" in2013.Then the monopoly level of Chinese banking in2010shows a small fluctuation, and the market structure is undergoing subtle changes.Finally, the paper selects the Z-score index and non-performing loans (NPL) as the variable of risk-taking, and constructs a model of the impacts from two market structure variables to the risk-taking. The empirical study shows that, the market structure of banking has significant impacts on the bankruptcy risk-taking, the commercial banks’ risk-taking in China is falling with the weakening of monopoly level. So, the commercial banks’bankruptcy risk-taking is overall falling in a fluctuation. Considering2010year as a turning point, the bankruptcy risk-taking volatility is relatively large from2006to2009, the total bankruptcy risk-taking is higher than6%; since2010the bankruptcy risk-taking is relatively stable in the4%-6%interval. At the same time, the risk of non-performing loans continues to decline, the banks’ operation effect appear gradually. Three explanatory variables as CRn、El and HHI in the model have showed significant impacts on risk-taking, and HHI is the first,then the market concentration (CRn), the entropy index is the third.The paper shows that, the monopoly level of Chinese banking’ market shows the positive correlation with the risk-taking of banking. Namely the more the banking market’monopoly level, the greater the bankruptcy risk-taking, vice versa. Obviously, this conclusion is different from the existing view that "the banking monopoly level in China can reduce systemic risk". This paper tests the correlation between the top five banks’assets ratio among all samples and the NPL of banking at the same period. Pearson, Kendall and Spearman correlation’s outputs show that the NPL risk were increasing with the monopoly level’s rise. At a practical point, the40-year history of the commercial banks in China demonstrates that the conclusions of this study have more explanatory power.