A Study Of The Influence Mechanism From Financial Agglomeration To Financial Risk

This paper firstly systematically reviewed the financial agglomeration theory, financial risks theory and the literature of how does financial agglomeration affect the financial risks. Based on the literature, firstly, the author used the information economics model and theory to analyze how the information deficiencies affect the financial risks. Secondly, the author explained the formation of two aspects of information deficiencies ("incomplete information" and "asymmetric information") with Information Space Theory. Thirdly, the article described the problem how the financial agglomeration phenomenon change the information deficiencies in regions from five roles of financial agglomeration. Thus, it connected the relationship of financial agglomeration, information deficiencies and the financial risks. So we found the impact mechanism "Financial agglomeration-Information deficiencies-The financial risks". Through the analysis of theory, the author gave the conclusions that whether the financial agglomeration can reduce the systemic risks are not sure, but financial agglomeration do reduce the financial risks as "Adverse selection" and "Moral hazard" caused by information asymmetry. In addition, financial innovation will increase the information asymmetry problem between finance institutions and financial regulators, which leads to "Moral hazard" of finance institutions. At the part of empirical research, this article examined the affection of the financial agglomeration to the credit risk of China's banks, and we found that the financial agglomeration phenomenon arise the credit risk. The author gave the possible reasons with the theory discussed in front. At the last part of this paper, the author gave some suggestions that how can us control of financial risks while financial agglomeration taking place.