Research On The Relationship Between China's Banking Competition And Financial Stability

Since the 1970s, with the acceleration of economic & financial globalization, the global banking industry which do advanced a new round of mergers and acquisitions wave is facing an increasingly complex and competitive environment. After the global financial crisis, the analysis of the Trade-off relationship between banking competition and financial stability become the worldwide issues. With China occupying an important position in the worldwide economy and finance market, the significance of discussing this issue in our country being more highlightened.Firstly, this paper clarified the importance of researching the relationship which between banking competition and financial stability, and arranged the achievement of past research. Secondly, with theoretically analysised banking competition and financial stability, this paper explained "Competition-Fragile Theory", "Competition-Stability Theory". Thirdly, by analyzing the annual data of dozens of individual listed banks in 2004-2013 and the national economic and financial data, the paper quantified the degree of banking competition and financial stability in china, which indicated the increasingly more competition existed in China's banking industry over the past decade, and our finance industry became more stability. Then, the paper added the macroeconomic environment and individual bank characteristics into control variables. With constructing the panel data regression, the empirical results shows that the higher degree of banking competition, the stronger financial stability it has. But it can be harmful to financial market when the level of banking competition over a certain level of competition. Overall, the relationship between banking competition and financial stability is still a positive correlation. Finally, based on the empirical results, this paper made suggestion from two path which include optimization of China's banking competition and safeguard financial stability.In this paper, there are two innovations:First of all, for seeking more scientific and accurate empirical results, the paper chose two methods to measured China's bank competition which involved CRn Index from structured method and Lerner index from unstructured method. Last but not least, as considering choosing index sets to quantified the degree of China's stability, the paper selected the index set which synthesize the index system from "China Financial Stability Report" and the Financial Soundness Indicators from IMF, and used the methods of factor analysis to handle multiple index which finally became an synthetic index.