The Impact Of Foreign Capital Entry On Banking Risk

Against the background of comprehensive opening up of the financial sector,the global financial landscape has undergone tremendous changes.According to the 2017 National Financial Work Conference,preventing systemic financial risks is the eternal theme of financial work.At the 10 th Meeting of the Financial and Economic Commission of the CPC Central Committee in 2021,it was again emphasized that we should prevent and defuse major financial risks in a coordinated manner and consolidate the foundation for financial stability.In this context,it is particularly important and urgent to study the relationship between banking openness and bank risk.Based on this,this paper focuses on analyzing the impact of foreign capital entry on bank risks from the perspective of foreign capital entry in banking.Firstly,the possible relationship between the two is sorted out by sorting out the relevant literatures at home and abroad.Secondly,through the review of the process of foreign investment in China’s banking industry,the current situation of the study outlined the characteristics of foreign investment in China’s banking industry;Then,according to the existing relevant research,the influence mechanism of foreign capital entering the banking industry on bank risk is summarized.Finally,based on the international panel data of the banking industry in 50 countries from 2004 to 2013,the mediation effect model is constructed to examine the impact of foreign investment in the banking industry on the risk of the host country from three channels: competition degree,innovation ability and financial development level.Based on data from 31 foreign banks in China’s banking industry from 2009 to 2018,a threshold estimate panel model is constructed to assess the impact of foreign investment on the banking industry on the risk of China’s banking industry from the three thresholds of asset size,foreign ownership ratio and profitability.Based on the above research,the following conclusions are drawn :(1)the entry of foreign capital will aggravate the risk of banks by reducing the degree of competition in the banking industry,increasing the innovation ability of banks and restraining the financial development level of the host country.(2)Based on the heterogeneity analysis of different countries,it is found that when the capital account opening degree of the host country is relatively high,the foreign investment in the banking industry has a significant inhibition effect on the bank risk;When the rule of law level of the host country is high,the foreign capital entering the banking industry has a significant restraining effect on the bank risk.(3)The influence of foreign capital entry on bank risks has the threshold effect of asset scale,foreign equity ratio and profitability.When the asset scale,foreign equity ratio and profitability of banks increase to a certain extent,foreign capital entry has a significant inhibition effect on bank risks.In addition,similar conclusions were obtained after robust analysis of different types of risks.Finally,from the perspective of preventing and resolving banking risks,the paper puts forward policy suggestions for optimizing and perfecting foreign investment in banking industry from the perspective of banking industry,government departments and regulatory authorities respectively,in an attempt to realize the coordinated promotion of China’s banking industry’s opening to the outside world and financial risk prevention and resolution.