Market Discipline,deposit Insurance System And Bank Risk-taking

Market discipline,as one of the three pillars of Basel II and an important measure of financial deepening,is one of the hotspots in recent years.And interest rate marketiza-tion is the substantive driving force to improve the mark discipline.With the gradual advancement of interest rate marketization and the implementation of deposit insurance system,the importance of market discipline to China's financial industry(especially bank risk)has become increasingly prominent.Therefore,it is of great theoretical and practical significance to study the impact of these initiatives on market discipline and bank risk in China's new financial background..However,There still lacks of domestic literatures studying the what effect will have on China's banking(especial different type of banks)after the implementation of the deposit insurance system any effect.Secondly,the researches of the effect of the interaction bwteen market disicpline and(explicit)deposit insurance systems on bank risk-taking are less.Finally,under the background of the process of interest rate marketization,what is the comprehensive effect of market discipline,deposit insurance system and interest rate marketization have on bank risk-taking? Obviously they are questions which worthy of attention and discussion(but lacks of domestic research).Therefore,this paper first studies the effect of market discipline of the total sample as well as the different types of commercial banks have on the respective risk by the SYS-GMM method.Secondly,since the implementation of the deposit insurance can be regarded as a typical quasi-natural experiment,this paper analyzes the policy effect of the implementation of the deposit insurance system on the bank's risk-taking,and further studies the impact of the interaction of the implementation of the deposit insurance system and the market discipline through the reasonable selection of the baseline control group and the difference-in-difference estimation based on the synthetic control method.the two on the bank risk.Furthermore,we consider the interest rate marketization factor,and then use SYS-GMM and the difference-in-difference estimation to discuss the interaction between interest rate marketization,market constraint and the deposit insurance system.By using the relevant data of 141 banks in China from 2010-2016,we have obtained the following conclusions:(1)The price discipline of large and foreign banks does not have significant impact on their risk-taking when the interest rate marketization factor is not taken into account,but the price discipline of the whole and local commercial banks is significant.In terms of number discipline,it is not significant in foreign banks.However,the number discipline of total,large and local banks can significantly inhibit their risk-taking behavior.And the effect of the mechanism of quantitative constraints in China is the effect of large and price constraints,which is different from foreign research.(2)Through the "counterfactual" approach,we estimates the policy effect of the deposit insurance system,to find that the implementation of the deposit insurance system has a significant positive effect on the risk-taking of large and local commercial banks,and the impact is more significant on local banks.(3)The estimation based on the difference-in-difference shows that the interaction between the market discipline and the deposit insurance system has a stronger impact on the local banks than the large banks.The interaction between the deposit insurance and the price discipline has a greater impact on the bank's risk-taking than the interaction between it and the number dicipline.(4)After the consideration of interest rate market factors,the effect of the price discipline of large banks on its risk-taking becomes significant,and the price discipline effect of the whole and local commercial banks has been enhanced;As for the number discipline,the effect of thelarge and local commercial banks has also been improved.In particular,the interest rate marketization has far more pertinent to the price discipline than to number discipline.(5)Interest rate marketization will lead to a significant increase on the bank risk-taking of different types of banks,and its impact on foreign banks is the smallest,followed by the large banks,the largest is the local banks.(6)From the comprehensive effect of the interest rate marketization and the price discipline,we find that,on the one hand,the interest rate marketiaztion enhances the effect that market discipline to curb the bank risk-taking.On the other hand,the effect of the interest rate marketiaztion to enhance the bank risk-taking is greater than the price discipline to curb the banks' risk-taking.(7)From the perspective of the comprehensive effect of interest rate marketization,market discipline and deposit insurance,the interest rate marketization will increase the positive impact of the interaction between market discipilne and deposit insurance system on the bank risk-taking.And this effect is more significant for the local banks,indicating that through the interaction bwteen deposit insurance system and market discipline,the interest rate marketization has the more significant positive impact on the local banks' risk taking.The results show that the impact of the interest rate marketization and deposit insurance system begins to be obvious,and the role of the market discipline mechanism also has gradually begun to coincide with foreign countries.But there's still space for futher deepening.