A Study On Market Competition And Risk Behavior Of Commercial Banks

In the process of China's financial system reform,interest rate liberalization is one of the most important contents.After the international financial crisis in 2008,the pace of interest rate liberalization reform in China has been greatly accelerated.In July 2013,the restriction on the lower limit of loan interest rates was abolished.In November 2014,the upper limit of deposit interest rates was raised.In October2015,the People's Bank of China announced the abolition of the floating cap of deposit interest rate,marking that China has nominally completed the interest rate liberalization reform.However,there is still a long way to go after the liberalization of interest rates.In May 2018,the People's Bank of China issued the"Report on the Implementation of China's Monetary Policy in the First Quarter of 2018",which pointed out that the"two tracks"of interest rates should be gradually integrated into the"one track".The liberalization of interest rate will affect the business environment of commercial banks to a great extent,which will have a greater impact on their business model,business development and the mechanisim for risk management.Therefore,in the process of interest rate liberalization in China,what impact will the relationship between market competition and risk in China's banking industry have?This is a problem worthy of attention and research.This paper examines the actual situation of market competition of Chinese commercial banks from macro and micro perspectives respectively,and measures the risk level of banks by using individual and systemic risks of banks.In the process of interest rates liberalization in China,it follows the following principles:According to the theoretical basis and mechanism between banks'market competition and risk,the paper carries out mathematical modeling and empirical test,then on the basis of empirical research conclusions,puts forward policy suggestions to improve the market competition environment of Chinese commercial banks and control bank risks.The main contents of this paper are as follows:Introduction.This paper mainly introduces the research background and significance,and reviews the relevant literature on this basis.Finally,this paper introduces the research content,ideas,methods,as well as possible innovations and shortcomings.The first chapter is the theoretical basis of this paper.This paper systematically reviews the interest rate liberalization,bank market competition and bank risk in theory,which lays the foundation for the empirical research in the following part.The second chapter is the process of interest rate liberalization in China.Firstly,it describes the process of interest rate liberalization in China,and then measures the index of interest rate liberalization in China.The third chapter is overview of market competition of commercial banks in China.Firstly,it reviews the development of China's banking industry and analyses the current situation of China's banking industry.Then,the unbalanced panel data of98 commercial banks in China from 2007 to 2017 are selected as the research object.Based on the method of market structure,it uses the Herfindahl Index(HHI)and the market concentration(CR_N)to measure the concentration of Chinese banking industry;based on the unstructured method,H Statistics,Boone index,Lerner index and efficiency-adjusted Lerner index are used to measure the competitiveness of Chinese banking industry.The market structure and competitiveness of Chinese commercial banks are analyzed comprehensively,and the changing trend of market competition of Chinese commercial banks in the sample period is summarized.The forth chapter mainly measures the risk behavior of Chinese commercial banks.Firstly,individual risk of commercial banks is measured.Then the literature about systemic risk is reviewed,and four methods of systemic risk are modeled and compared,i.e.three?CoVaR methods and MES methods.The fifth chapter mainly studies the relationship between market competition and individual risk of Chinese commercial banks.On the basis of the previous analysis,this paper firstly reviews the literature on the relationship between bank market competition and individual risk of banks,and then puts forward relevant research hypotheses.Finally,using the method of system GMM,this paper empirically examines the relationship between bank market competition and individual risk in the process of interest rate liberalization.The sixth chapter mainly studies the relationship between market competition and systemic risk of Chinese commercial banks.On the basis of the previous analysis,this paper firstly reviews the research literature on the relationship between market competition and systemic risk in banking industry,and then puts forward relevant research hypotheses.Finally,using the method of system GMM,this paper empirically examines the relationship between market competition and systemic risk in the process of interest rate liberalization.Conclusions and policy recommendations.The dissertation summarizes the research result of the article and form some conclusions.According to the market competition and the bank risk situation and the interaction relationship,this paper puts forward the corresponding policy recommendations.The main conclusions of this paper are as follows:Firstly,China's interest rate liberalization reform has made remarkable achievements.It is also found that the interest rate liberalization index fluctuates continuously during the crisis,and after the crisis,the interest rate liberalization index shows a rapid upward trend.This change is basically in line with the dynamic adjustment of relevant policies in the process of interest rate liberalization in China.Secondly,the concentration of China's banking market is declining,while the level of competition is rising rapidly from 2007 to 2010,then declining year by year,and then rising gradually until 2015.Generally speaking,the competition level of China's banking market belongs to the level of monopoly competition.In addition,the market power of large state-owned commercial banks is stronger and further enhanced,while the market power of national joint-stock commercial banks and rural commercial banks has declined significantly,and the market power of urban commercial banks is more stable.Thirdly,since 2007,the non-performing loan rate of China's commercial banks has been declining as a whole.From the perspective of different types of commercial banks,the non-performing loan rate of rural commercial banks is the highest in 2017,followed by joint-stock commercial banks,large state-owned banks,urban commercial banks and foreign banks.Regarding systemic risk,GAS-based-Dynamic Gaussian Copula-?CoVaR can describe the loss dependence among banks more accurately.Because of its relatively long history and large scale of assets,large state-owned commercial banks are favored by residents,so their contribution to systemic risk is relatively low,while the contribution of joint-stock commercial banks and urban commercial banks to systemic risk is relatively high.Fourthly,there is a U-shaped non-linear relationship between market concentration and competitiveness of commercial banks and individual risk,respectively.Atpresent,China'scommercialbanksaremainlyin the"concentration-fragility"region and"competition-fragility"region.At the same time,interest rate liberalization helps to reduce the impact of market concentration and competitiveness on individual risk of commercial banks.Compared with small and medium-sized commercial banks,large commercial banks will be more affected.Finally,there is a non-linear inverted U-shaped relationship between market concentration and competitiveness of commercial banks and systemic risk,respectively.And for the current commercial banks in China,the higher the market concentration,the greater the competitiveness and the greater the systemic risk.At the same time,interest rate liberalization helps to reduce the impact of market concentration and competition on systemic risk of commercial banks.There are several innovations in this dissertation.Firstly,the risks of commercial banks are divided into individual risks and systemic risks,and the relationship between market competition and these two kinds of risks is discussed respectively.Previous literature mostly studies the relationship between market competition and bank risk from the perspective of individual risk of banks.This paper expresses bank risk from two dimensions of individual risk and systemic risk of banks,and studies the relationship between market competition and risk behavior of commercial banks more comprehensively.Based on the characteristics of China's interest rate liberalization reform,this paper studies the relationship between market competition and risk behavior of commercial banks in the process of China's interest rate liberalization.Secondly,Based on CoVaR,this paper uses GAS-based dynamic Gaussian Copula method to estimate?CoVaR,which can better estimate the dynamic correlation between markets and better measure systemic risk.In addition,according to the characteristics of China's interest rate liberalization reform,the interest rate liberalization index is constructed from three aspects:the actual interest rate level,the fluctuation range of interest rate and the way of interest rate determination.Finally,the research sample is richer and more complete.The sample selected in this paper is more complete,including state-owned commercial banks,national joint-stock commercial banks,urban commercial banks and rural commercial banks,and the data statistics also unified the calculation caliber,thus improving the accuracy and reliability of the research conclusions.The shortcomings of this paper are as follows:this paper mainly focuses on applied research,focusing on the empirical test of the actual situation,while there are few theoretical innovations.It only analyses the existing theories,and has not made a breakthrough in theoretical research.Also,the sample time is not enough,and the regression analysis of short panel data may affect the robustness of empirical results.