A Research On The Impact Of Shocks Between China’ Banking Soundness And Macro-economic

The financial industry is the core of modern economy, once a financial crisis happened,both real economy and virtual economy will be under huge attack.Bank industry is the basis andcore of the financial industry, the bank soundness is the premise of the financial stability. Manytheories and empirical researches fully demonstrate that in the financial crisis, the bank crisesmade the most of the destruction.So, keeping the soundness of the banks is the core ofmaintaining the stability of the financial system, whether it can both guarantee the economicgrowth, and also controll the financial risk efficiently is a top priority. The safety and soundnessof the banks depend on the banking governace, valid banking governance is the key to thedevelopment of the stability of the financial system,for preventing the risks of banks andpromoting the soundness of banks, it is very important and irreplaceable.Many researchersthought that, the serious consequences of the U.S. subprime mortgage crisisthe is mainlyattributed to the defect of the banking governance and the resulting fragile risk controlsystem,improving the governance of the banks is in favor of avoiding the risks of the banks. Thisfurther led to the attention of theory and practice session on bank governance and risk controlling.In the current domestic and international context, making a systematic research on the bankingsoundness and the impact of the Board of Directors of the Bank governance on the banksoundness has a very important theoretical and practical significance.First,Based on financial soundness indicators system prepared by IMF and macro-prudentialindicators proposed by the people’s bank of China, this paper construct the core set of indicatorsfor China’s banking soundness indicator system, this core set of indicators include capitaladequacy, asset quality, bank earnings and profits, and liquidity four aspects of the bankrepresentative indicators, then synthesis banking soundness index BSI and use BSI to evaluatecomprehensively the stability of China’s banking system.As the result shows, the BSI of all thekinds of banks are substantially similar.From2004to2007,the BSI are on the rise,but from2007to2009,the BSI are generally declined,form2010to2011,the curve of the banks are essentiallysimilar,the BSI showed a rapid upward trend,and most of them even exceed the highest point ofthe pre-.It means that,since2004,the reform of the banking industry achieved remarkableresults,increasing the soundness level of the banking industry in China,but due to the seriousimpact of the global financial crisis triggered by the subprime mortgage crisis happened in 2007,the world financial institutions suffered to serious blow even bankruptcy liquidation or tookover by government.On the surface the financial crisis did not happen in our country,but theeffect spread to all levels of our economy society through the conduction of the real economyand others,then also to the banking industry with a certain degree of impact,as a result of theimpact,the level of the soundness of banks decreased significantly.Facing the financial crisis,theChinese government introduced a series of measures such as fiscal policy and monetary policyinstrument to stimulate the investment and employment of the domestic private sector,promotethe economy to grow steadily and rapidly.Then the economy improves,as the financialintermediaries,the level of the soundness of the banks also gradually picked up.Second, on this basis, this paper made a research on the relevance between the soundnessof the banks and Macroeconomic performance. We tested panel Granger causality among thesoundness of banks, economic growth, the expansion of credit size and capital market prices, wefound that there is a one-way Granger causality between the index of bank soundness and theGDP growth rate, the index of the bank soundness and the stock price，but between the othervariables pairwise of them are mutually Granger cause.Afterwards, this paper measured theimpact of the macroeconomic and financial variables on the soundness of the banks throughconstructing a PVAR model. The results of the Impulse response analysis show that the shocks ofeconomic growth、the expansion of credit size and stock market price to the soundness of thebanks have a positive impact, and the responses have a higher value in the first phase basically,but in the long run，the impact decreased and then return to the steady，it means that the impactisn’t persistent. In the other hand, the soundness of the banks has a negative impact on economicgrowth and has a positive impact on the expansion of credit size and stock market price, but theimpact isn’t persistent and significant.It shows that there is an asymmetric relationship betweenthem. The results of variance decomposition shows that, as the main financial organizationserving the growth of economic, the steady and rapid growth of GDP depends on the soundnessof the banks, the economic growth has a smalll degree of impact on the soundness of thebanks.In the same time, the expansion of credit size also depends on the soundness of the banks,in turn, the expansion of credit size and the stock market price have a small impact on thesoundness of the banks.Third, this paper made a research on the inter-impact between the soundness of the banks andmacroeconomic policy. The results of the Impulse response analysis said that, in the short term,bank soundness has a positive role in promoting the fiscal policy transmission tool--fiscaldeficit/GDP and fixed asset investment growth rate, but in the long run, the impact is negative;loose fiscal policies have a negative impact on the bank soundness, and the impact have long-term effects;facing the shock of the interest rates, bank soundness initially will produce a small negativeresponse, but in the long term, the impact is positive; the shock of the exchange rates will have ashort positive impact on the soundness of the banks,but in the long term,the impact isinsignificant;in the other hand,the bank soundness is beneficial to the results of the transmission ofmonetary policy in short-term, but in long term, it has little effect.Fourth, this paper made a research on the impact of the Board organizational efficiency onthe banking soundness. We synthesize several variables that will reflect the characteristics of theBoard to two variables: the organizational structure of the Board and the operational efficiency ofthe Board, and take a new way to portray the governance efficiency of the Board; and takeM2/GDP, credit growth rate as control variables to build Panel Data model and estimate it. Theresults show that the organizational structure and operational efficiency of the Board have asignificant impact on the stability of the banks. Among them, there is a positive correlationbetween the organizational structure of the Board and the stability of banks, it can be seen that,independent director system, leadership structure, the reasonable set of professional committeehelp to improve the efficiency of Board Governance, promote the sound operation of the bank; therelationship between the operational efficiency of the Board and bank soundness is negative, theexcessive number of board meetings will reduce the efficiency of board decisions, and reduce thestability of banks, but too many executives in the board, concentration of the management’s right,is not conducive to supervision of the senior management to the board of directors of banks, willreduce the efficiency of board governance, affect the stability of the banks. In the same time, byimpulse response analysis and variance decomposition, we found that the organizational structureof the Board has a smaller positive role in promoting the soundness of the banks in the first phase,but the effect does not have long-term; operational efficiency changes of the Board will produce apositive role in promoting the soundness of the banks in the first phase, the effect is relativelylong-term.