Analysis Of Financial Innovations On Banking Stability Effect

In recent years, financial innovation has been common in China. Some related financial innovation, like financial systems, financial markets, and financial tools, are promoting the development of financial industry in our country. The key point of stable financial industry is stable banks. It has been indicated by practices that bank crises are most devastating in the financial crises. This paper has made some analyses on the effect of financial innovation to stable banks by theoretical and practical research. There are four parts in the whole paper.The first part is preface, introducing the background and meaning of this research.The second part is to summarize those financial innovation and bank stability theories in the world. The financial innovation is a new combination of all kind of financial elements, and the process of continuing financial reforms which aims to get rid of financial dealing venture and chase for the most profit. On the other hand, the basic meaning of bank stability means that the bank systems have stable ability to pay and it can manage all kinds of risks and distribute financial resources effectively. Besides, the bank systems can also bear unbalanced strike from outside and get rid of those frailty and crises.The third part is theoretical discuss on the effect of financial innovation to stable banks from both macroscopic and microscopic levels. This part has proofed the positive and negative effects of financial innovations and got some conclusions. 1, A kind of financial innovation has got both positive and negative effects on bank stability. Or there is only little negative effect at the very beginning, while it will expand with accumulated crises during the popularization period. 2, In terms of those effects of financial innovation, they need some time to be acknowledged. People are always enlightened suddenly when crises come which are caused by those negative effects. 3, The negative effects can be avoided by further financial innovation. 4, In preventing the negative effects of financial innovation, financial regulation plays an important role. Meanwhile, financial innovation will lead to a financial regulatory system innovation.The fourth part is research on China's financial innovation strategy. It has put forward some solutions to guard against financial risks and maintain bank stability, including six major financial innovation strategies and three current risk prevention measures. The general principle is to micro-invigorate, strengthen early warning and effective macro-control, and strengthen supervision.