| Frequent financial crises have caused great harm to the economic development and financial stability of countries all over the world.In China‘s bank-led financial system,banking crises are financial crises in a sense.Although China has not experienced a large-scale banking crisis,the banking system has exposed many disharmony factors.In order to effectively prevent banking crisis and maintain financial stability,we should focus on the "banking fragility",the high-risk state of banking system.Under different realistic background and institutional environment,the formation mechanism and governance path of banking fragility are also different.With the progress of urbanization and the reform of household registration system,the cost of population mobility is gradually reduced,which promotes the migration between rural and urban areas and between small and big cities,and thus forms the spatial distribution pattern of population agglomeration in China.It is generally believed that population agglomeration contributes to the formation of agglomeration economies with increasing returns to scale by strengthening information communication and exchange among people,and promoting the beneficial sharing and rapid matching of various production factors such as capital,intermediate inputs and financial resources gathered along with population.For the banking sector,population agglomeration is essentially information agglomeration.Under the influence of the information mechanism,population agglomeration has quite significant "double-edged sword" effects on the banking system.On the one hand,population agglomeration reduces the information cost of financial transactions in the agglomeration area,alleviates the problem of information asymmetry,improves banks‘ risk identification,and thus alleviates the banking fragility to a certain extent.On the other hand,population agglomeration strengthens the improper information advantage that drives financial expansion and the negative information contagion that induces financial panic in the agglomeration area,which not only enhances banks‘ risk preference,but also aggravates the external liquidity shock suffered by the banks,resulting in the more serious maturity mismatch of the banks’ assets and liabilities,and thus worsenes the banking fragility.So what is the relationship between population agglomeration and banking fragility? Through which channels does population agglomeration affect the banking fragility? And what policy tools can be used to strengthen/weaken the potential link?In order to answer the above problems,this paper defines the micro appearance of banking fragility as two dimensions,the increase of individual bank bankruptcy and default probability(bank idiosyncratic risk)and the increase of risk contagion capacity within the whole banking system(bank systemic risk).And then,in combining with constructing a theoretical model of banking fragility with the population agglomeration factor and designing relevant empirical model,this paper aims to identify the causal relationship between population agglomeration and banking fragility,and evaluate the governance effect of financial safety net policies(including banking capital regulation and deposit insurance system)on the relationship between population agglomeration and banking fragility.The findings are as follows:First,in the idiosyncratic risk dimension of banking fragility,this paper selects 341 commercial banks with operation area covering 200 cities(prefecture-level cities or municipalities directly under the central government)in China from 2007 to 2020 as the research objects,constructs the three-dimensional unbalanced panel data of "bank-region-year",and thus empirically studies the micro-effects of population agglomeration on banks’ active risk-taking,passive risk-taking and their combined idiosyncratic risk.The findings are as follows:(1)Population agglomeration increases banks’ active risk-taking,but reduces banks’ passive risk-taking,and finally intensifies bank idiosyncratic risk under the competition of the two types of risk-taking.(2)The mechanism of population agglomeration on bank idiosyncratic risk lies in: On the one hand,population agglomeration increases banks‘ active risk-taking by inducing extensive credit expansion motivation and enhancing banks’ risk preference in the agglomeration area;on the other hand,population agglomeration increases banks‘ passive risk-taking by alleviating information asymmetry and improving banks’ risk identification in the agglomeration area.The former mechanism is dominant,and there is a positive correlation between population agglomeration and bank idiosyncratic risk.(3)The analyses of moderating effect show that the more concentrated the ownership of the bank,the more local government holding the bank,the more capital regulation pressure the bank faces,the more concentrated the banking market structure,the more prosperous the real estate market and the looser the monetary policy,the stronger the positive correlation between population agglomeration and bank idiosyncratic risk.(4)The analyses of regional heterogeneity show that when the population clusters to high-density areas,eastern regions,and first-tier cities,bank idiosyncratic risk increases more.The core finding of this part is that population agglomeration aggravates the idiosyncratic risk dimension of banking fragility,so it is necessary to strengthen the idiosyncratic risk prevention and micro-prudential supervision of banks in agglomeration area.Second,in the systemic risk dimension of banking fragility,this paper selects 27 listed banks traded in China’s Shanghai and Shenzhen Stock markets from the first quarter of 2007 to the fourth quarter of 2020 as the research objects,constructs the two-dimensional unbalanced panel data of "bank-quarter",measure the two indexes of banks’ systemic risk contribution and systemic risk exposure,and thus empirically studies the micro-effects of population agglomeration on bank systemic risk.The findings are as follows:(1)Population agglomeration not only increases the risk spillover of banks to the whole system,but also strengthens their risk sensitivity to external shocks,which aggravates bank systemic risk from two directions of risk contagion.(2)The mechanism of population agglomeration on bank systemic risk lies in: The bank idiosyncratic risk induced by population agglomeration further evolves into bank systemic risk.Moreover,population agglomeration aggravates banks’ systemic risk by worsening banks’ maturity mismatch,which is derived from the more(off-balance sheet)liquidity creation at the asset side and the more risk sensitivity of depositors at the liability side.(3)Heterogeneity analysis results show that population agglomeration has a more significant positive impact on non-state-owned banks,banks with higher leverage ratio,lower capital adequacy ratio,and banks with higher population density in their operation areas in the period of financial panic prone and low public confidence.The core finding of this part is that population agglomeration also aggravates the systemic risk dimension of banking fragility,so it is necessary to strengthen the systemic risk prevention and macro-prudential supervision of banks in agglomeration area.Third,based on the quasi-natural experiments of the formal implementation of the "Chinese version of Basel Ⅲ" on January 1,2013 and the deposit insurance system on May 1,2015,this paper establishes Difference-in-Differences models to evaluate the governance effect of banking capital regulation with higher capital adequacy requirements and deposit insurance system on the "population agglomeration—banking fragility" relationship.The findings are as follows:(1)By restricting banks‘ excessive risk preference and guiding banks to increase their actual capital adequacy ratio,bank idiosyncratic risk and the "population agglomeration—bank idiosyncratic risk" relationship are released.However,banking capital regulation with higher capital adequacy requirements increases negative incentives for banks to transfer the idiosyncratic risk to the whole system,resulting in a "seesaw" relationship between idiosyncratic risk and systemic risk,which further intensifies bank systemic risk and "population agglomeration—bank systemic risk" relationship.(2)Deposit insurance system has no significant impact on bank idiosyncratic risk,but it can significantly release bank systemic risk and "population agglomeration—bank systemic risk" relationship.The mechanism lies in: Deposit insurance system can not only enhance the stability of liquidity liabilities to alleviate the problem of maturity mismatch,but also increases the competitiveness of deposit market to squeeze the internal size of shadow banking,which acts on the bank systemic risk and ―population agglomeration—bank systemic risk‖.The core finding of this part is that there is a functional conflict between micro-prudential and macro-prudential in the governance effect of the "population agglomeration—banking fragility" relationship with the banking capital regulation that raises the capital adequacy requirement;and deposit insurance system has macro-prudential function for "population agglomeration—banking fragility" governance.In a word,population agglomeration is an important trend of economic and social development in China.Although it contributes to the formation of agglomeration economies,its impact on financial stability cannot be ignored.The fundamental conclusion of this paper reveals that population agglomeration aggravates the banking fragility and has a negative shock on the bank-led financial system,regardless of the idiosyncratic risk or the systemic risk dimension.Therefore,there are certain trade-offs between agglomeration economies and financial stability,and how to better ease the "population agglomeration—banking fragility" relationship becomes the key to balance the two.In this regard,this paper puts forward relevant policy suggestions. |
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