Research On The Competition And Banking Risk Assumed Relationship

Banking competition and banking system stability is always the two main themes of the financial system. Stable and healthy banking sector, enabling banks to maxim-ize the intermediary role to play, is conducive to China’s rapid economic development; With the deepening of China’s financial reform, our banking market Banking has a variety of types of bank, such as State-Owned Commercial Banks, Joint-Stock Commercial Banks, City Commercial Banks and Savings Banks and other types of banks. As our finance system in the December 11,2006 opening, our banking market competition is increasing. the influence of a competitive banking market on financial stability is not clear yet. There are two main opposing theories on this matter. Some studies find that competition intensifies banks risk-taking behaviors, as it pressures banks to operate with a minimum capital, while others defend the contrary, stating that crises are less likely to occur in competitive banking environments. This paper analyzes whether competition has any effect on our financial stability and if this relationship changes as a result of other factors, such as bank size and capitalization. This method consists of estimating a stochastic frontier with the Z-score as the dependent variable of the translog specification, thereby providing a measure of the bank’s "stability inefficiency".Our results indicate that the non-linearity of the effect of competition on risk-taking supports the concentration-stability and the concentration-fragility theories. Banks facing both high and low competition are larger level risk-takers than banks experiencing average competition. First, our findings suggest that larger banks are more vulnerable, especially for more competitive banks. Second, under competition, capitalization seems to have a positive impact on financial stability for State-Owned Commercial Banks, but have a negative impact on financial stability for lower and average competitive commercial banks. With the global financial market crisis emerged in recent years, these conclusions for the bank’s management, monitoring and policy formulation provides an important basis.