| Chinese banking industry has been relying too much on traditional asset-liability businesses. In order to diversify risk, compete with rivals and get integrated with the world market, Chinese commercial banks are eager to expand new markets. One way to solve this problem is to develop intermediate business and increase noninterest income. However, whether developing intermediate business can diversify risk or not still remain a contentious issue. Obviously, solving this problem will not only influence the management objectives and development strategies of commercial banks, but also has a guiding significance to the policy makers of the regulatory authorities. Given this background, this paper uses the data of sixteen listed commercial banks for the period of 2005-2012 to analyze the relationship between intermediate business and bank risk.This paper first analyzes the original sample data, and then uses two methods to assess the relationship between intermediate business and bank risk. In the method based on correlation test, it uses Pearson correlation test to test the relationship between intermediate business and income risk and the relationship between intermediate business and bankruptcy risk. In the method based on portfolio theory, it uses two means to change the original equation. One is the correlation analysis between noninterest income and interest income and the other is to break the variance formula of the growth rate of operation income.The results show that improving a bank’s intermediate business can reduce bankruptcy risk; developing intermediate business and traditional business at the same time helps reduce bank risk; most of the variance of growth rate of the operation income comes from the variance of growth rate of the interest income; when the variance of growth rate of the interest income is almost the same, reducing the proportion of interest income can diversify risk.These results have an important significance for Chinese commercial banks to develop intermediate business and get diversification benefits. |
