Diversification Affects The Stability Of Banks

Before the market-oriented reform of China's banking industry,the profit of commercial banks mainly depended on the interest rate difference between deposits and loans.At present,the development of commercial banks was a rough development model.However,with the rapid development of China's economy,the progress of interest rate liberalization,financial "disintermediation" and the rise of Internet finance,the former profit model that only relied on the interest rate difference between deposits and loans is no longer suitable for the current situation.In order to survive and develop in the current fierce market competition environment,China's commercial banks must change the rough development mode in the past,pay attention to meet the diversified needs of customers,and improve the level of service and technology.Diversified management is a kind of expansion means adopted by modern enterprises for long-term development.As a kind of enterprises,most banks have adopted diversified management strategy,aiming at improving their comprehensive strength,increasing profits and reducing risks.In recent years,there has been an obvious trend of diversification in China's commercial banks.Taking 52 commercial banks in China from 2009 to 2018 as samples,this paper explores the impact of diversification on bank stability from the perspectives of income diversification and loan diversification.After analyzing the data,this paper expounds the current situation of income diversification and loan diversification in China's commercial banks,and analyzes the motivation and reasons for commercial banks to implement the diversification strategy.Then,this paper analyzes the mechanisms of income diversification,loan diversification and other factors on the stability of banks,and based on this,puts forward the research hypothesis and establishes the research model.The empirical results show that there is an obvious inflection point effect between bank diversification and bank stability.Income diversification has an inverted u-shaped nonlinear relationship with bank stability,first,income diversification is positively correlated with bank stability,after the inflection point,the increase of income diversification will increase the risk of the bank.Loan diversification has a positive u-shaped nonlinear relationship with bank stability,in the early stage,loan diversification is not conducive to the improvement of bank stability,after the inflection point,the increase of loan diversification will improve the stability of the bank.Accordingly,this paper puts forward suggestions for banks to implement diversification strategy from these two perspectives.