Local Politicians' Promotion Incentives And Commercial Bank Risk Exposure In China

Since China's reform and opening,the lasted 40 years of rapid economic growth is one of the most obvious feature of the economic development.China's rapid economic sustainable growth has caused a wide attention of scholars and experts all over the world,trying to explain the reason and motivation of the "growth miracle".Our country's outstanding economic construction cannot leave the efforts and contributions for local economic development of our local governments.China's local politicians have played a vital role in the local economic progress and development in China.Local politicians are motivated by a strong promotion incentive to promote local economic development and progress.Local politicians under the promotion incentives compete for more financial resources,by intervening in the business and credit direction of commercial Banks to achieve their political objectives,this brings many risk problems of commercial Banks.Therefore,to understand the risks of commercial Banks in China,it is necessary to discuss the influence of local politicians' promotion incentives.This paper mainly discusses the Chinese local politicians' promotion incentives and commercial bank risk exposure,and whether the local politicians' promotion incentives exist differences among different types of commercial Banks.First of all,this paper review the existing domestic and foreign literature from the impact of government involvement in banking business,the reason of local government's intervention,the relationship between local politicians' promotion incentives and the risk of commercial Banks,and determine local government's interventions in commercial bank will cause negative effect as the angle of this paper.Then through the historical evolution of the relationship between local government and commercial Banks,the historical factors of local government's influence on commercial Banks are clarified.Based on the actual situation of local economic development in China,we analyze and summarize that promotion incentives of local politicians increase bank risk through the “liquidity channel”,the “profitability channel”,the “volume channel” and the “quality channel”.Secondly,this paper uses 104 commercial banks' data from 2013 to 2016 as samples to do the empirical research,builds the promotion of local politicians' promotion incentives index,establishes an empirical model of the relationship between Chinese local politicians' promotion incentives and commercial bank risk exposure,and discuss the influence of promotion incentive according to different types commercial banks,as well as do the stability test of the conclusion.Finally,this paper puts forward some policy suggestions on the management of local politicians and the risk prevention of commercial Banks according to the empirical study conclusion: attaching great importance to the promotion incentive effects on bank risk,innovating the way of promotion assessment for local politicians,improving the internal governance norms of city commercial banks.The main conclusions of this paper are:(1)Promotion incentives of local politicians may affect bank risk,and an increase in promotion incentives will lead to an increase in bank risk.(2)The effect of promotion incentives on bank risk is more significant for city commercial banks.(3)There is a negative correlation between the size of commercial banks and the bank risk,namely,the larger the commercial Banks,the less risk they face.(4)There is a negative correlation between the deposit reserve rate and the bank risk,namely,the increase of the deposit reserve rate will reduce the risk of commercial banks.(5)There is a negative correlation between GDP growth rate and the bank risk,namely,the high GDP growth rate reduces the risk of commercial banks.