An Empirical Study On The Relationship Between Banking Competition And Bank Stability In China

Under the condition of market, market competition will adopt on franchise value, risk transfer, credit behavior, crisis contagion and regulation efficiency and other ways to affect the behavior of market and asset quality of banks, and thus have an impact on bank stability. After decades of deepening financial reform and development, the degree of competition and stability of our commercial banking system present the dynamic changing tendency. Therefore, researches on the relationship between our banking competition degree of changing and the bank stability, to meet and guide the banking reform in our country, has a certain practical and theoretical significance.Taking the 20 major commercial Banks in Chinese banking system between 1999 and 2012 as a sample, based on the display of H statistic gained from Panzar-Rosse measure of market competition model, along with the deepening of reform and opening up of the financial sector, the banking competition degree continuous enhancement. The figure has risen from 0.5745 in 1999 to 0.7824 in 2012. The Chinese commercial banking system currently has entered the "monopolistic competition, enter free" market patterns. The bank stability index(BSI), which is merged between banking stability index measure system constructed on the basis of the "Joint-stock commercial bank’s risk rating system (Provisional)" and the "mapping method", shows that the stability of sample banks in general are on the rise, the stability of urban commercial banks is the best, bank stability of four sample are currently in a safe interval; the stability of the 11 national joint-stock commercial banks on the whole is better than the five large-scale commercial banks, China merchants bank, Shanghai Pudong development bank, industrial bank, citic bank stability performance is most good; Because of the bad loans huge historical baggage problems such as risk control system is not sound, the workers and peasants build poor stability of four big commercial Banks, after CCB, ABC, ICBC,BOC completing joint-stock reform and the successful listing in domestic and overseas, the stability improved significantly.On the basis of the existing empirical correction framework, using 20 major commercial banks in China as the research samples, using the statistic as banking competition degree measure and the bank stability index (BSI) as the bank stability measure, also, with introducing the growth rate of actual GDP, inflation rate, bank scale, the degree of diversification of assets, LDR(such as control variable), using the panel data model, the relationship between Chinese banking market competition degree and the bank stability has been empirically tested. The empirical results shows that a significant u-shaped relationship between the degree of competition and the bank stability dose exist:when the statistics that measure the degree of banking competition is in 0-0.7743 interval, the increase of competition degree can enhance bank stability; When statistics are more than 0.7743, the market competition increase will lead to instability of the bank occur. In addition, the empirical results also showed that the growth rate of actual GDP, inflation rate and bank stability index (BSI) have significantly negative and positive correlation. It is also confirmed that the stability of the macroeconomic operation is conducive to the improvement of Chinese banking system stability. The degree of diversification of assets and bank size have negative correlation to the bank stability index (BSI), thus, the higher of the degree of diversification of assets, the more banks expand, to stronger of strengthen of the bank stability is. LDR and bank stability index (BSI) are negative correlation, i.e. the improvement of the LDR is not conducive to improve the stability of the bank.Based on the above empirical results, in order to improve the stability of the banking system in China, the following measures could be taken, firstly, Thinking of Chinese banking reform should make a trade-off between promoting competition and maintaining focus to, a competitive commercial banking system with a certain level of concentration should be built to keep an appropriate extent of competition, improve market basis for bank stability. Secondly, maintain the stable operation of the macroeconomic and strengthen the early warning of macroeconomic, avoid the response to the economic cycle fluctuation tightening of monetary policy, fiscal policy appears excessive (or expand), cause the overall price level and the rate of economic growth in a big shift in a certain period, thus to bank credit scale, asset quality and stability, the impact of the formation is too big. Thirdly, the implementation of differentiation competitive strategy, each commercial Banks should base on their actual situations to apply differential competitive strategies, namely, on scale, products, customers, regions and brands in order to form their own core competitiveness gradually.