Study On The Relationship And Its Differences Between The Commercial Bank Competition And Risk-taking Behavior:under The Background Of Interest Rate Liberalization

The research about the relationship between commercial bank competition and risk behavior is closely related to the banking developments. Since the 1970 s, the western’s economy started get out of the economic crisis, the view of financial liberalization swept over the banking. During that period, Efficiency of commercial banks has been greatly improved, however, accompanied by an unprecedented crisis in the bank’s risk exposure. Therefore, "Competition fragile theory” came out, scholars believe that the deterioration of the bank’s risk is because of the competition.However, there are some scholars hold different views, "Competition stability theory" says that the competition will not increase the risk of the bank butto improve the banking system.Since the 2008 global financial crisis, the study about the relationship between risk and competition re-became the focus.In 2013, China has achieved full liberalization of interest rate, marks the loan interest rate market reform made a key progress. Apparently, deposit interest rate liberalization will become the core of the work in recent years. Nowadays, the deposit interest rate reformis on the way,the policy of the deposit insurance system has also been introduced. Interest rate liberalization led to the bank’s operating environment changes, Including increased interest rate volatility, more intense market competition, and the gap of interest rate between savings and loan spreads narrowed. There’s no doubt that banks should adjust to the environment. Therefore, this paper studies the relationship between bank competition and risk behavior in the background of interest rate liberalization.According to their different resource endowments, in the same market environment, commercial banks will choose different business strategies. It is necessary to clarify this difference so that could provide a reference for interest rate reform and financial market access. Therefore, In this paper, we study the differences based on the 2000-2012 panel data of 50 commercial banks in China. According to their different resource endowments, in the same market environment, commercial banks will choose different business strategies. It is necessary to clarify this difference so that could provide a reference for interest rate reform and financial market access.This paper using the fixed effects model with Driscoll-Kraay robust standard errors empirically examines the relationship between banking competition and risk taking behavior, using panel data of Chinese 50 commercial banks during 2000-2012.The results show thatthe relationship between bank competition and the risk of bankruptcy is nonlinear, shows a type of U, and “competition-risk” relationship is obvious different between different type of banks. The relationship between risk and competition of large banks is positive, charging by “risk transfer effect”, while the relationship of small banks is negative, charging by “profit marginal effect”.The relationship between competition and credit risk of the small and medium-sized banks is significant positive, while the relationship of large banks does not have significant correlation. In order to ensure the efficiency and stability of commercial banks, it is better to take appropriate management methods for different type of commercial banks, taking into account the efficiency and stability of the banking operation.