The Influence Of Deposit And Loan Competition On The Systemic Risk Of Commercial Banks

In order to adapt to the continuous development of the economy and enable the effective allocation of funds,China started the interest rate liberalization reform in 1996.The reform constantly liberalized the limits on the floating range of bank interest rates and followed the order of "loan first,deposit later".In October 2004,the central bank released the upper limit of the loan interest rate,and the loan interest rate was first liberalized.In July 2012,the central bank allowed the deposit interest rate to float to 30%of the benchmark interest rate,and the deposit interest rate started market-oriented reform.Subsequently,in July 2013 and October 2015,the central bank released the restrictions on the loan-deposit interest rate in turn,which also marked the completion of China's interest rate liberalization reform.The reform of interest rate liberalization has endowed Banks with independent pricing power,enabling market funds to be effectively allocated.However,the degree of competition among commercial Banks will be continuously enhanced during this period,especially the price competition,which has replaced the previous mode of competition through institutional expansion.Specifically,commercial Banks will increase their business volume and increase their income level by increasing deposit interest rate and lowering interest rate.These competition methods may also bring some risks to Banks.For example,the change of interest rate leads to the narrowing of interest margin of commercial Banks,making it more difficult to compete for resources in the competitive market.If the profit declines,the risk resistance and stability of commercial Banks will also be weakened.For another example,the control of loan pricing power of commercial Banks encourages the high-risk investment behaviors of commercial Banks.If the venture investment is difficult to be recovered,the default will bring credit risks to the Banks.Shadow banking,a financial innovation product with rapid growth in recent years,has brought new sources of profits to commercial Banks.However,due to its lack of supervision and high risks of its investment goals,it will undoubtedly bring potential risks to Banks.In 2011,the problem of usury in Wenzhou and other places emerged,which proved the reality of shadow banking.China's commercial Banks have serious product homogenization and close business contacts.Therefore,if there is a risk in one bank,it will spread to other Banks,and this cycle will lead to systemic risks in commercial Banks.The report of the 19th national congress of the communist party of China calls for comprehensively deepening financial reform,improving the financial supervision system and firmly holding the bottom line of no systemic risk.It can be seen that the prevention and control of systemic risk has become a major issue in China's financial industry.As a major member of China's financial industry,commercial Banks' prevention of systemic risks should not be ignored.Therefore,this paper intends to study the influence of deposit and loan competition on the systemic risk of commercial Banks in the process of interest rate liberalization.Through theoretical analysis and empirical test,the relationship among the three factors will be clarified to find out the causes of the systemic risk of commercial Banks,so as to better prevent risks.This paper first discusses the relationship between the two and the dynamic changes in the process of interest rate liberalization from the perspective of qualitative theoretical analysis,and puts forward research hypotheses.Then,from the perspective of quantitative empirical analysis,relevant indicators are selected to build a regression model and sample data are returned to test the research hypothesis proposed in the theoretical analysis part.The final research results of this paper show that during the reform of interest rate liberalization,deposit competition has increased the deposit interest rate of commercial Banks,resulting in a narrowing of their profit margins and a weaker ability to withstand risks.At the same time,under the competition,the value of commercial Banks' concessions decreases,which increases their incentives and behaviors to take risks.All these have caused negative effects on the systemic risk of commercial Banks.However,during this period,the impact of loan competition on the systemic risk is not significant.The deposit competition among state-owned commercial Banks,joint-stock commercial Banks and urban commercial Banks has intensified the systemic risk of commercial Banks to some extent.At the stage of loan interest rate liberalization,it is loan competition that has a negative impact on the systemic risk of commercial Banks,while at the stage of deposit interest rate liberalization,both deposit and loan competition have increased the systemic risk.According to the above research results,in order to prevent the risk of commercial Banks,in order to prevent the risk of further spread,endanger the commercial banking system,this paper puts forward relevant countermeasures and Suggestions to the relevant departments and commercial Banks.