The Selection About Credit Risk Mitigation Methods Of Banks And "Small Bank Advantages"

For a long time,scholars believe that the "small bank advantage" will generally exists in various countries.The "small bank advantage" refers to a comparative advantage that the small and medium-sized banks have in the process of providing credit services for SMEs,compared to the large banks.However,domestic research found that "small bank advantage" in our country is not significant.From the bank loan decision-making process,this paper will analyze the key factors that affect"small bank advantage",and believe that in addition to soft information,the selection about the selection about risk compensation tools of banks plays an important role which may make the "small bank advantage" insignificant.This paper proposes three key hypotheses:H1:in China,"small bank advantage"still exists.H2:in China,small banks still have soft information advantages.H3:in China,most of the small banks use mortgage as their credit risk Mitigation method,while large banks use portfolio management method to offset the risk of loans.Through the examination of the above three hypotheses,we find that in China,the"small bank advantage" is not significant.Moreover,it shows a "large bank advantage".And small banks still have soft information advantages as traditional theory indicates.Most of the small banks have limits on making full use of credit risk mitigation methods,using mortgage as their credit risk mitigation method,while large banks use portfolio management method to offset the risk of loans.Considering the lack of collateral of SMEs in our country,using mortgage as the credit risk Mitigation method is not suitable for the current development of Chinese SMEs.Because of the difference between large banks and small banks in the credit risk Mitigation methods,which may lead to the "large bank advantage" contrary to the traditional theory.Finally,based on the test results,this paper proposes some suggestions for serving the SMEs in China and developing the Chinese financial markets.