The Study On Moral Hazard Of Chinese Listed Commercial Banks Under The Implicit Deposit Insurance System

Because of China haven’t establish a perfect system of deposit insurance,the government will use the funds of the central bank and local financial for assistance once bank runs and credit crisis happen in China.This mechanism is aslo called "implicit deposit insurance".Banks will boldly carry out high risk investment activities owing to the existence of this system.That is moral risk.In recent years, the implicit deposit insurance system in China has greatly influenced the stability of the financial system, the efficiency of macro economy, the healthy development of the economy and lead to the lack of effective allocation of resources.Commercial bank’s dividend payout phenomenon caused the attention of a large number of scholars after the bank and the financial crisis in 2007. Banks is not willing to cut their dividends even during the financial crisis.bank shareholders will transfer a large number of distributable profits to their name, and transfer bank default risk to the deposit insurances through dividend distribution.That is called risk-transfering and it is a form of moral risk, risk-transfering will bring economics losses to depositors and bring enormous pressure on government finances.Whether the risk-transfer phenomena of China is existence is the main purpose of my article.This paper intended to solve three major problems:why the implicit deposit insurance system leading to moral hazard of listed banks in China; the theory of risk-transfer through the dividend distribution channels; establishing a model to verify the risk-transfer phenomenon and analyzing the result.This paper explained the moral risk of China through the expected revenue function for depositors and banks. Through the analysis of the expected function,I found that the implicit deposit insurance system can lead to the weakening of depositor market discipline and thus cause the occurrence of bank’s risk-taking behavior. Through the research on the Merton model,I found that dividend will increase the premium rates, so the bank can transfer the risk to the deposit insurance institutions. The empirical part use dividend payment rate and the default risk as explained variable and the explanatory variables for the panel model. I found state-owned banks has a very significant default risk transfer phenomenon, but the listed joint-stock banks does not exist that after the analysis of state-owned banks and joint-stock banks.Finally, this paper found that the state-owned commercial bank exist risk-transfer because the state-owned commercial banks have the the direct injection of central bank and the government.Under the implicit deposit insurance system the state-owned commercial banks are prone to produce moral risk because they will get direct and whole guarantee by the government once they have a credit crisis or investment mistakes.