The Effects Of Interest Rate Liberalization And Bank's Diversified Operations On Bank Stability

Diversified operations of commercial bank has become an unstoppable trend after the banks had experienced the baptism of the wave of mergers and acquisitions between financial industry and financial liberalization in the 1990 s.As interest rate liberalization has preliminarily completed in China,the domestic economic slowdown and financial disintermediation phenomenon is increasingly prominent, interest margin income of traditional loan business of commercial banks have spread narrowing, net interest income have decreased, then the competition between Banks have gradually increased. The commercial banks in China have experienced a positive transformation, but also brings the risk of financial products innovation, cross--regional entrust- agent, increased operating costs and so on. Based on this phenomenon,the influence of diversified operation on bank stability has important research significance in the process of interest rate liberalization?The study introduces the current situation of commercial bank operation, and analyzes the present situation and trend of Chinese commercial Banks on diversified operation as an example of listed commercial bank from the perspective of capital structure,operating profit and asset quality. In the empirical part, this paper uses GMM method to study the effect of commercial banks' diversified operations and interest rate liberalization on bank stability which based on the unbalanced panel data of 43 commercial Banks in China from 2007 to 2014. The empirical results show that: firstly, higher traditional business of loan and deposit leads to the lower degree of diversified financial services and the profit model,then lower bank stability, but higher geographic diversification of traditional business of loan and deposit increases bank stability; Secondly, higher intermediary business which diversifies financial service leads to higher bank stability, but higher geographic diversification of intermediary business decreases bank stability; Thirdly, the higher degree of interest rate liberalization which leads the spread of deposit and loan narrowed and Banks are more motivated to engage in risky business, and then reduces bank stability.According to the empirical results and the current situation of Chinese commercial banks, this paper puts forward the following five suggestions: firstly, the commercial banks should pay more attention of the intermediary business, and vigorously develop intermediary business; secondly, different types of commercial banks which based on its own resource advantages should develop special financial services; thirdly, geographic diversification of commercial bank should be matched with their own characteristics and risk management, asset size and choose the mode of diversification;fourthly commercial banks should strengthen the risk management on the process of interest rate liberalization; lastly, commercial bank should advance information development and data governance.