The Impact Of Interest Rate Liberalization On The Risks Of Chinese Financial Institutions

The liberalization of interest rates refers to the abolition of interest rate controls,giving play to the regulatory role of the financial market,allowing financial institutions to independently adjust and determine the interest rates of their various products.It takes 19 years,and until October 24,2015,the People's Bank of China fully liberalized the RMB deposit interest rate control of commercial banks and rural cooperative financial institutions.Chinese interest rate control was fully liberalized,and the reform of the interest rate liberalization system was initially completed.The liberalization of interest rates is a double-edged sword.On the one hand,it can allocate various resources of financial market with high efficiency and rationality,and fully exert the basic functions of financial market.On the other hand,interest rate liberalization may directly lead to increased interest rate risk,credit risk and bankruptcy risk faced by financial institutions,making Chinese financial market highly vulnerable,causing financial crisis and even economic crisis,endangering financial stability and society stability.Many scholars such as Zhou Xiaochuan and Li Yang suggested that attention should be paid to the increase in bank risks and even systemic banking crises caused by interest rate liberalization reforms.It can be seen that it is an urgent task for Chinese financial work to study whether the liberalization of interest rates will indeed bring risks to Chinese financial institutions.Most of the existing researches only consider the impact of interest rate liberalization reform on Chinese banking risk exposure,and pay less attention to the relationship between interest rate liberalization reform and systemic risk of Chinese financial institutions.Therefore,this paper combines the micro and macro perspectives,and further considers the impact on systemic risk when studying the impact of interest rate liberalization reform on the individual risks of Chinese financial institutions.What's more,this paper expands the research sample and innovatively examines the heterogeneity of the impact of interest rate liberalization reform on the risk of different kinds of financial institutions(banking,securities,insurance).In terms of the impact mechanism of interest rate liberalization reform on financial institution risk,it has been qualitatively pointed out that interest rate liberalization reform has intensified competition among financial institutions.Empirical research is limited to market competition and risk.Few studies have explored the mediating role of competition in the impact of interest rate liberalization on financial institution risk.And understanding the specific mechanisms will help the regulatory authorities to better guard against risks.This paper uses the intermediary effect analysis method of Wen Zhonglin to test and analyze it.This paper uses ?CoVaRproposed by Adrian and Brunnermeier to measure the systemic risk of financial institutions,uses Z proposed by Roy to measure the risk-taking of financial institutions,constructs interest rate liberalization index like Wang Shujun and Peng Jiangang,uses Lerner index to measure the competition of financial market.The sample period for this article is January 1,2008 to December 31,2018.A total of 66 financial institutions are selected,which constitutes unbalanced panel data.The system GMM estimation method has been used to test the impact of interest rate liberalization reform on individual risks and systemic risks of financial institutions in China,whether there is any significant heterogeneity in the impact of interest rate liberalization reform on banks and non-bank financial institutions,whether there is mediation effect of market competition.The main conclusions are as follows:First,the interest rate liberalization reform has increased the individual risk and systemic risk of Chinese financial institutions.Second,after considering the heterogeneity between banks and non-bank financial institutions,it was found that the impact of interest rate liberalization on bank risks is slightly weaker.Third,market competition does play a mediating role in the impact of interest rate liberalization on the risks of Chinese financial institutions.Based on this,this paper proposes the following corresponding countermeasures and suggestions:First,effectively guide financial institutions to change the competition mode,actively promote the transformation and innovation of financial business,and avoid vicious competition and excessive risk-taking.Second,improve the risk early warning mechanism,strengthen prudential supervision,and smother the various risks that interest rate liberalization reforms may bring in the cradle to maintain the stability of Chinese financial system.Third,increase the transparency of financial institutions' information,reduce the cost of public access to relevant financial institutions,increase public confidence in financial institutions,and reduce the occurrence of herd behavior in order to enhance the stability of the financial system.Fourth,formulate and implement appropriate system regulations for each industry,which match their characteristics.