The Influence Of Cross-Border Capital Flows On Financial Stability

With the development of global integration,countries gradually liberalize the capital controls,and the scale of cross-border capital flows is also increasing.A large number of cross-border capital flows have brought instability to the domestic financial market while supplementing the domestic capital gap,promoting the optimization of industrial structure and establishing a suitable trade structure.When large-scale crossborder capital inflows,it will lead to domestic asset price bubbles and adversely affect the domestic financial system.When the domestic and foreign macro-economy deteriorates,a large amount of capital will flow to developed countries,which will also have a negative impact on the domestic economy and even trigger a financial crisis.It can be seen that there is a close relationship between cross-border capital flows and financial stability.More and more scholars pay attention to studying how cross-border capital flows affect financial stability and how to manage the impact of cross-border capital flows on financial stability.This paper focuses on the mechanism of cross-border capital flows on financial stability,firstly,combing the relevant literature on cross-border capital flows and financial stability,it is found that cross-border capital flows can affect financial stability by affecting bank risk-taking channels,stock market stability and exchange rate stability.Combined with relevant theories,its action channels are sorted out in detail.Select the quarterly panel data of 35 countries,including 20 developed countries and15 developing countries,select relevant indicators from the banking institutions,stock markets and foreign exchange markets,and synthesize the overall financial market stability index and each market stability index.Then,the generalized least squares method is used to study the relationship between cross-border capital flows and financial stability,and different types of cross-border capital flows and different types of countries are distinguished.The empirical results show that total capital inflows have a negative effect on the stability of banking institutions,stock market stability and foreign exchange market stability,and have a stronger effect on developing countries.Specifically,direct investment inflows can effectively promote the financial stability of developed and developing countries,and enhance the stability of banking institutions and stock markets.The role of portfolio investment is similar to that of other investments.Its inflow can effectively promote the financial stability and development of developed countries,but it will have a negative impact on developing countries.However,the positive effect of portfolio investment on the stock market is very significant.Based on the above empirical analysis,this paper puts forward policy recommendations from the perspectives of strengthening cross-border capital flow management,improving the domestic economic and financial environment,and establishing corresponding monitoring systems for different markets.