Bank Risk Taking Under The Financial Deepening Process Of China

Financial deepening is often accompanied with banking crises.Bank risk taking always plays an extremely important role in the transmission path from financial deepening to financial crisis.Historical experience shows that while financial deepening contributes to relaxing financial depression,improving financial efficiency and promoting economic growth,it will also leads to excessive risk taking of commercial banks and increasingly instability of the financial system.The logic is that on the one hand,the market competition result from financial deepening will change banks’ risk appetite and stimulate banks to take higher risk strategy.On the other hand,financial innovation will create more funding channels and investing opportunities for banks.In addition,in the process of financial deepening the decline of the financial control power which caused by the external shocks and institutional reform will also stimulate banks’ risk-taking behavior.In recent years,China’s financial deepening reform has obtained great achievement,especially in the market-oriented interest rate reform,banking access opening,the opening of capital,etc.,which contribute a lot to enhance the competitiveness of the financial markets and improve the operational efficiency of the financial market.At the same time,financial deepening also brings external shocks to commercial banks,such as increased competition,narrowed spreads,increased cost of debt.This Complex external environment will change the incentives and constraints of bank risk-taking,which will affect bank risk-taking behavior decision and bring challenges to financial supervision and regulation.In this context,how to effectively restrain the excessive risk-taking of commercial banks,so as to maintain the stability of the banking and financial system,is an important issue to be solved.Based on the above observation,this dissertation reviewed the topic of bank risk-taking under the financial deepening process of China.After reviewing domestic and foreign related literature,the third chapter analyzed the historical evolution and present situation of China’s financial deepening process.This chapter mainly reviewed the history of China’s financial deepening reform impetus,basic content,and evaluated financial deepening extent through different aspects such as economic monetization,interest rate marketization,bank competition,capital market development and financial innovation etc..In addition,this chapter analyzed the historical evolution and present situation of China’s commercial banks’ risk taking using the risk measure method and behavior measure method respectively.The fourth chapter analyzed several basic problems of bank risk-taking,including internal motivation,internal constraints and external constraints.Conclusions from this chapter is helpful for answering questions such as why banks will take excessive risk.How will franchise value and the external factors restrain bank risk-taking.The fifth chapter explained how different financial deepening policy measures impact banks risk taking based on the framework of planned behavior theory.We believed that financial deepening creates both promoting incentives and inhibitory effect to bank risk taking.We demonstrated this idea through three mail facors including risk-taking attitude,ability,the external constraints,which could be explained by risk recognition,risk preference,funding sources,technical conditions,investment opportunities,management autonomy,regulatory and market constraints in detail.The sixth chapter providing empirical evidence of the impact of financial deepening on bank risk taking by means of canonical correlation analysis method.The seventh chapter summarized the main research conclusions in the above chapters.On this basis,this chapter provided suggestions for promoting China’s financial deepening,effectively constraining banks’ excessive risk taking,so as to maintaining financial stability in China.Innovation of this paper is as follows:(1)On the basis of the behavior essence of risk-taking,this paper built a unified framework to analyze the mechanism about how different financial deepening measures influence bank risk-taking;(2)This paer combined Merton’s Put Options Pricing Model and Marcus’s Call Options Pricing Model to analyze the mechanism and institutional conditions of impact of charter values on bank risk taking;(3)Behavior measure method is used to study the impact of financial deepening on asset side,liability side and off-balance sheet side of bank risk taking.This paper also further studied different influence of financial deepening on bank risk taking through comparative analysis among different bank type.The research conclusions can solve current academic divergence on this issue to some extent.