Research On The Relationship Between Diversification And Risk-taking Of Commercial Banks

Due to Marketization of Interest rate formation mechanism as well as demand-diversification of financial services,the domestic commercial banks have been facing a dilemma which is how to keep earnings growth sustainably in recent years.Today commercial banks in national wide are dedicated to improve their profit composition by means of diversifying business models which include operations?service function and income structure.Taking topics background,significance as well as literature review at home and abroad into account,the paper firstly explains the fundamental reason of developing diversified business model.Secondly,we rationally analyse the transmission mechanism,in view of the theory of asset portfolio and the hypothesis of risk dispersion and transferring,which is between business diversification and bank's risk,and then puts forward the hypothesis of this paper.Since 2006,the non-interest income,whose growth rate has been surpassing the growth rate of net-interest income,has become an indispensable source of income for China's commercial banks.Subsequently,the reform of interest rate marketization has basically achieved in October 2015,which indicated that commercial banks would be acquired independent pricing power on interest rates.According to international experience,the interest-rate spread between deposit and loan will continue to reduce after the reform completed,so the traditionally high capital-consumption pattern which regards net spreads as the main source of income would be ineffective,and the business crisis on commercial banks would deteriorated.Therefore,this paper uses the GMM estimation method to analyze the data of 40 commercial banks which is from 2006 to 2016 in China.Considering the relationship between the diversification of income structure of commercial banks and risk-bearing,the paper focuses on the nonlinearity between the two factors and heterogeneity among banks of different sizes.The calculation results represent that there is a significant positive correlation between business diversification and risk-bearing.In other words,the higher the level of diversification,the greater the business risks the banks will bear.And compared to smaller banks,large and medium-sized banks will face more business risks in the diversification process.Additionally,there is a positive U-shaped relationship between the level of bank diversification and risk-bearing.Based on the findings of the calculation results,this paper proposes corresponding countermeasures for commercial banks in different scales and diversification levels.