Empirical Analysis On Competition And Stability Of Banking Industry In China

The reform on China's banking institutions which began in the 80's of last century broke the original "unified" market structure.The four major state-owned banks started to operate as modern enterprise,which used to operate as policy-directing institution.Then Joint-stock banks set up,and a competition system of China's banking industry formed.In recent years,more small and medium banks have established along with private banks;meanwhile,with the gradual advancement of interest rate market and the rapid development of Internet finance,commercial banks are facing increasingly fierce competition.Changes in banking market structure has important impact for the stability of the banking system and economic development.The 2008 financial crisis hit the alarm for the global financial system.System risk regulation has become one of the most popular topics in academic circles and on global financial regulatory reform both domestically and abroad.In China,some local debt default cases occurred occasionally in recent years,testing the risk prevention ability of China's financial system.In such a situation,China's regulatory authorities have also stressed the necessity to firmly hold the bottom line that systemic risk incident would not happen.The relationship of banking competition and stability has been studied for a very long time,but the conclusion was mixed due to different regulation environments in different countries and different factors involved.In order to test the impact of the increasing competition on the system risk in China's banking sector,this paper takes the system risk as the proxy variable of stability to study the relationship between the competition degree and the stability of China's banking industry.The first chapter of the paper sorted out the theoretical basis of the relationship between competition and stability in banking industry and divided it into two factions— "competition-fragile" hypothesis and "competition-stability" hypothesis.The second chapter analyzed the concept and causes of risk in the system,then explored the mechanism of competition affecting the banking system risks.The third chapter of the paper introduced several methods of measurement of bank competition degree and system risk.Then the logarithmic cost function was used to calculate the Lerner index of 16 public listed banks in China,and described the SRISK in China.In the fourth and fifth chapters,this paper established a panel model to analyze the relationship of competition and stability,taking the 16 public listed banks as samples,the Lerner index as a proxy for the degree of competition and SRISK as proxy for stability.It found out that with the increasing of banks' market power,the system risk increases which supports the "competitive-stability" hypothesis.According to the conclusion,this paper argues that it is necessary to continue to raise the degree of competition in the banking industry by promoting the reform,strengthen the monitoring of bank asset quality.A financial risk emergency response mechanism should be established to handling incidents of the local default crisis,avoiding shocks to financial system.