A Study On The Impact Of China's Interest Rate Liberalization On Commercial Banks' Operating Efficiency

In the 20th century,major developed countries have implemented a strict regulation to the interest rate to promote the growth in economy and maintain a stable financial order.However,driven by the power of the transitions of economic development patterns,the promotion of financial innovation and financial liberalization thoughts,many advanced economies began to liberalize their interest rate in 1970s to 1980s.Our country had first put forward the implementation of market-oriented interest rate reform in 1993.Up to 23th Oct.2015,our country has removed the cap on deposit rates,which means the basic completion of market-oriented interest rate reform.As the price of capital,interest rate could have big implications for commercial banks,which are the main part of financial industry.Then,what kind of impact will the interest rate liberalization have on the operating efficiency of commercial banks?What is the influence mechanism?What impact effect will it present?And how should the commercial banks in China face this impact?Based on the above issues and the reality of interest rate liberalization,this paper researches the impact of China's interest rate liberalization on the operating efficiency of commercial banks.Firstly,this paper reviews some domestic and foreign research results about the interest rate liberalization,operating efficiency of commercial banks and impact of interest rate liberalization on the operating efficiency of commercial banks.Second,the author quantifies the interest rate liberalization process to construct the interest rate liberalization index,and evaluates the operating efficiency of commercial banks by the use of DEA-based Malmquist index model.Next,the author analyzes its influence mechanism,and proposes hypotheses about the relationship between interest rate liberalization and operating efficiency of commercial banks.At last,based on panel regression model with sample datas of 16 commercial banks in 2005 to 2014,this paper has done empirical study to the relationship between interest rate liberalization and operating efficiency of commercial banks.By an innovative use of introducing the quadratic term of interest rate liberalization index into empirical model,this paper focuses on the study of the nonlinear relationship between the interest rate liberalization and operating efficiency of commercial banks.The conclusion is that there is a "U" type relationship between interest rate liberalization and operating efficiency of commercial banks in China.Previous stage of interest rate liberalization may lose efficiency of commercial banks,while interest rate liberation may promote operating efficiency of commercial banks in the latter stage.The reason is that the interest rate undulation,spread change,excessive competition may directly impact commercial banks on their risks,profits and operating environment at the early stage.However,recessive effect improves the economic environment and the reform of commercial banks in late stage.Then,the operating efficiency of commercial banks is promoted.Hereby,the author put forward the proposal:The regulatory authorities should tighten the implementation of the deposit insurance system to avoid the short-term negative impact of interest rate liberalization.In the short-term,the commercial banks should adjust the scale,optimize the structure,and speed up the development of intermediary business.Meanwhile,the commercial banks also should realize the business transformation and strengthen management and innovation ability.In the long term,the commercial banks should develop towards the direction of complex operation.