Theoretical And Empirical Research On The Impact Of China’s Marketization Reform Of Interest Rate On Banking Stability

Marketization of deposit interest rate is the most critical step of China’s interest rate marketization,and the deposit interest rate deregulation will essentially improve the degree of interest rates marketization. However, according to the experience of other countries’ interest rate marketization reform, complete interest rates marketization reform is a double-edged sword, which not only helps improve the efficiency of financial resources, but also possibly has a strong impact on a country’s banking system stability.So how to successfully complete the interest rate market-oriented reform with ensuring the banking system stability is a priority.Based on the literature review, concept analysis and relevant theory,this article firstly analyzes and summarizes the lessons from the impact of foreign countries’ interest rates marketization reform on banking stability, then use model predictions and mechanism analysis approach to theoretically analyze impact of China’s interest rate marketization on banking stability, and use quarterly data of 15 listed banks from year 2009-2013, panel data and VAR model to test the question that the market-oriented reform of interest rates impact banking stability through price competition from spreads narrowed and interest rate fluctuations two channels, while the macroeconomic, financial innovation and avoiding regulatory measures may magnify the impact of this effect.But impact from marketization of interest rates on banking stability is not lasting, interest rate market-oriented reform is conducive to China’s banking stability just in short term, and in the long run has a positive impact on banking stability.Finally, we give suggestions about how to strengthen the banking stability from the aspects of interest rate marketization reform, banking institutions and banking supervision.