Research On Influence Of Competition On Risk-taking Of Domestic Banking System

Banking is the core of a country's financial system, which is directly related to the steady and healthy of the development of the national economy. Since the financial deregulation and financial liberalization was applied in the 1970's, financial efficiency has been greatly improved. However, the phenomenon of bank failures occurred frequently at the same time. The regulatory authorities and academia generally agreed that bank competition would increase bank failures and deteriorate industry stability. Therefore, the view of "Competition-Fragility" prevailed, regulatory authorities preferred to strengthening financial regulation. However, the view of "competition-stability" view began to rise with further research in the 21st Century. Competition in the market not only will not damage the soundness of the banking system, on the contrary can balance the interest between banks and stakeholders, which enhance the stability of the industry.China launched banking market-oriented reform in banking since the 1980's, financial market has been liberalized. It announced that PBC will not set the deposit rate floating ceiling for commercial banks and rural cooperative financial institutions on October 2015, which means that the interest rate controls liberalized in general. This undoubtedly have a significant impact on the competitive landscape of China's banking industry, and make regulatory authority face a great challenge. Therefore, analyzing the current banking competition and clarifying the relationship between market competition and risk behavior of commercial banks have great theoretical and practical significance on both maintaining stability of the banking industry and perfecting the safety regulatory framework.Based on data of 57commercial banks from 2005 to 2014, this paper investigates the impact of banking competition on the the level of risk-taking with unbalanced panel data regression method. The empirical analysis is divided into two steps. At first, based on the Boone theory, this paper analyzes competitive landscape of the banking industry combining China's commercial banks reality. Then taking the Boone index, size, capital adequacy ratio, the gross domestic product and monetary liquidity into a unified analytical framework, the paper empirical examine the impacts of credit-market competition on the stability of the bank.The results show that:the competition decreases the stability of the bank system; which support the "Competition-Fragility" hypothesis in loan-market. With the increase of per capita GDP and monetary liquidity, the banking system stability is improved; while the total assets of the bank is negatively correlated with the stability, and the capital adequacy ratio is weak negatively with it. It also find that the results the average Boone indicator in the loan-market is -0.5552 from 2005 to 2014; on the view of banking nature, the most competitive is the city commercial banks, followed by joint-stock banks, while the state-owned banks is the weakest in competition. Therefore, the regulatory authority should take a more equitable, cautious and prudent view on competition policy in the process of banking market-oriented reform.