Research On The Different Impact Of Banking Competition Degree To Risk In China's Banking

Finance is known as the blood of the national economy and banking is the basis of the finance, the stability of banking plays an extremely important role on the healthy development of finance and even the entire national economy. Since the reform and opening up, China's banking becomes more competitive and more efficient. But for the relationship between the competition and the risk of banks, the domestic and foreign scholars have been unable to agree on. At present there are two very different points of view, that is, "competition-stability hypothesis" and "competition-vulnerability hypothesis". Moreover, literature at home and abroad are mostly confined to measure the overall degree of competition and risk of banking, and few of them analyzes banking classified according to bank's size, region and nature factors. Therefore, analyzing the difference of the effect of competition degree on risk among various types of banks in China's banking has a positive effect on regulatory measures in our country, the implementation of classified supervision of all kinds of banks, which can help to stabilize the banking effectively.This paper is based on the unbalanced panel data of 103 commercial banks in China's banking from 2005 to 2014, analyzing the relationship between China's commercial bank competition degree and the bank's risk as well as the difference of the relationship of various banking competition degree with the bank's risk. This paper firstly introduces the concept of bank competition and risk, analyzes the definition of bank competition and bank risk, influencing factors and measurements. The lerner index is used to measure banking competition degree, Z index is used to measure bank risk and the fixed effect model is used to analyze the overall relationship of our country's banking competition and risk. Then, this paper analyzes the different influence of the change in various types of bank competition degree on bank risk by introducing virtual variables. It is showed in research results that the level of China's overall banking competition is low and the state-owned banks and rural commercial banks have bigger market power than that in the joint-stock commercial banks and city commercial banks. The bank's market power fluctuates over the economic cycle. In the sample period, China's commercial banks' competition degree was positively related with the bank risk, which to a certain extent supports the hypothesis of "competitive-fragility. The study also found that the influence of changes in banking competition degree of state-owned banks and city commercial banks. Finally, according to the empirical results, the paper puts forward relevant policy suggestions, to improve the stability of China's banking industry and reduce the risk of bank.