The Impact Of Foreign Bank Entry On The Efficiency And Stability Of Comercial Banks

As the core sectors of the national economy, the efficiency and stability of the banking sector is directly related to the stable and healthy development of the macro-economic. In the background of transition and increasingly complex economic environment, how to further strengthen the stability of the banking system has become the key issues in the crucial stage of financial reform. This article uses the micro-based mathematical model, the panel probit and system GMM econometric model, explores the effect of foreign bank entry on the bank performance and stability during the transition process of financial liberalization of the Central and Eastern European countries, and then analyzes the effect of foreign bank entry on the bank performance and stability of China banking sector during the reform process and the development of regulatory policies, meanwhile, provides some policy advice to the banking regulatory authorities to further deepen the reform of the banking sector system.First, Comparative analyzes the background of banking crisis and high risk between Central and Eastern Europe transition countries and China, and elaborate the introduction of foreign banks and the impact on the Eastern Europe transition countries’s and China’s banking sector respectively, and then put forward to the following propositions.Secondly,The aim of this chapter is to obtain some conclusion to promote the reform of Chinese banking by analyzing the mechanism of foreign bank entry and bank crisis from the perspective of institutional change in Central and Eastern Europe transition countries. The paper finds the foreign bank entry increased the probability of bank crisis in the background of the defection in legal system. With the improvement of legal and financial regulatory system, foreign banks exerted a significant impact on promoting the performance of Central Eastern Europe countries’ banking. However, the financial liberalization led to Central Eastern Europe countries’banking excessively dependent on foreign capital, foreign banks brought the great risk to the banking system through the "contagion effect" when they encounter the external shocking. Thirdly, The aim of paper is to answer this question and provide the practical and theoretical value for the consequent reform of Chinese banks. We adopted a spatially disaggregated measure of foreign bank presence to analyze the impact of foreign bank entry on the performance of Chinese banks, the results are as follows: First, domestic banks expanded investment to cope with the stiff competition brought by foreign banks, leading to the increase in the rate of overhead to total asset; Second, there is a U-shaped relationship, a threshold effect, between foreign bank entry and net interest margins. Third, it found that there is a positive impact that foreign bank entry exerts on the pre-tax profits of Chinese commercial banks in the analytical period of sample.Fourthly, From the perspective of M&A, this charpter elaborates the relationship between the introduction of foreign strategic investors and the efficiency of China banking sector on the basis of the total factor productivity index calculated under the constraint of non-performing, it shows that there is U-shaped relationship between the introduction of foreign strategic investors and total factor productivity and pure technical efficiency of Chinese banks with different ownerships. Meanwhile, the holding time of Chinese banks by foreign strategic investors has a positive effect on the efficiency of Chinese commercial banks.Finally, Financial liberalization and foreign bank entry inevitably enlarge the potential risks of the banking sector, and then effect the stability of China’s banking system. This charpter focus on the interaction between the macro-economic development, the level of banking supervision and foreign bank entry on the stability of China banking sector, the results are as follows:macro-economic development and the level of banking supervision exert a positive effect on foreign banks entry to promot the stability of China banking sector; there is a U-shaped relationship between foreign bank entry and the stability of the banking sector.