Bank Market Power And Finance Stability

In the process of economic development and financial globalization integration, the emerging market was hit deeply by financial crisis. The huge negative effects on developing countries pose the greatest challenge. Finance vulnerability promote the banking system crisis on one hand, on the other hand, it is an important reason prompted the crisis stage. Bank, as an important part of finance institution, whose fragility made up the instability of financial system with other finance institution over a long period. The most effective way is to keep the financial system vulnerability in a low state of normal to protect the whole banking system’s health. However, only by simple importance to define the concept of system does not meet the needs of the regulation. In the concrete regulation tools, need to accurately measure the importance of system of organization, and leaning on the regulation resources appropriately.This paper focus on the banking market from three aspects, which include bank income volatility, bankruptcy risk (insolvency risk), capital adequacy (capitalization) respectively. Considering the dominant market government regulation of China, the banking collapse phenomenon will not occur easily. Based on this, the selection of bank bankruptcy risk variables, the paper adopted the Alman Z values and Z-score model as two variables to measure risking variable. On the basis of full discussion on influence of bank market power, finance vulnerability accumulation and finance crisis, this paper analyzes the impacts of bank market power and macro-environment on finance stability, using a sample of 16 listed commercial banks in China from Jan 1998 to Jun 2013. The empirical analysis realizes that great market power in the banking market results in lower stability, so monopoly could not bring yield absolutely. Higher market power exacerbates bank insolvency risk, which means allaying bank asset risk. However, great market power in the banking market is also associated with the reducing of capitalization. A deeper investigation shows that such behavior is dependent on the economic environment. Higher economic growth contributes to neutralize risk taking and instability, reducing capital asset ratio in less competitive market.