Research On The Economies Of Scale Of The Compliance Cost Of Commercial Banks In China

Since the financial crisis in 2007,the banking regulatory authorities of various countries adopted a series of strict supervision measures to solve a series of chaotic problems caused by the financial crisis and ensure the smooth operation of the economy and financial system.The Basel committee also promulgated the new banking supervision rules "Basel 3" in 2010.Chinese banking regulatory commission quickly followed up with a series of new regulations.Thus,the banking industry entered the era of strict supervision.Some think the regulations are beneficial,such as protecting financial consumers,reducing the likelihood of bank failures and improving the stability of financial system.But others argue that the regulations could enhance the compliance burden on banks,especially may impose disproportionately heavier compliance burden on smaller banks,reducing the availability of credit to consumers and even impeding further economic development.Big banks pose such a great risk to the stability of the entire financial system that they are supposed to be strictly regulated,but small banks should be exempt from any useful or necessary regulations for big banks.Uniform regulations for all banks impose heavier compliance burden on smaller banks.Many foreign research results also show that there are economies of scale of compliance cost of banks.With the expansion of the bank's asset scale,the bank's compliance cost accounts for a lower proportion of its total non-interest expense,that is,the compliance burden on smaller banks is heavier than that on larger banks.However,no one has studied whether China's banking regulation imposes a disproportionate compliance burden on smaller banks or not.One important reason is that the data about compliance cost of banks is hard to acquire.Based on the research methods of relevant foreign scholars,this paper takes the bank's non-interest expense as proxy indicator of bank compliance costs to study whether the intensity of bank regulation affects bank expenses.The intensity of bank regulation is measured by counting the frequency of key words such as "should" and "must" which indicate the limitation of bank regulations.First,this paper introduces the theories about compliance cost of banks,and states the characteristic facts of the economies of scale of bank's compliance cost.Then,this paper uses the panel data of52 Chinese commercial banks from 2010 to 2018 to do empirical analysis.The paperuses the total assets of 200 billion which financial regulatory authorities often use as the standard to divide the 52 commercial bank into 22 larger banks and 30 smaller banks,and the regression analysis for larger banks and smaller banks is carried out respectively.The results of empirical analysis show that the change in the intensity of bank regulations has a greater positive impact on the non-interest expense of smaller banks,that is,there are economies of scale of bank's compliance cost in China.Thus,curret bank regulations impose heavier compliance burden on smaller banks in China.Therefore,banking regulators should take the size of banks into account and conduct differentiated supervision for large banks and small banks in order to reduce the compliance cost of smaller banks,and establish another set of regulatory rules which is suitable for the development of smaller banks.