The Research On The Volatility Of Stock Price And The Vulnerability Of Banking System

America's subprime mortgage crisis reflects the fragility of the banking system, because of the continuous development of financial innovation, the inadequate financial supervision, the banking system's operational risk increased. So it's very necessary to understand the volatility of asset price, especially to understand how the volatility of stock price affect the vulnerability of the banking system, and the extent to which the volatility of stock price will affect the vulnerability of the banking system.Based on the basic theory of the vulnerability of banking system and how the volatility of stock price affect it, the paper analyzed the China's and the America's ratio of non-performing loan and the ratio of capital adequacy, the growth ratio of money supply and the ratio of inflation. And weighted these four indicators to represent the fragility of banking system in 2007-2010. The paper also analyzed the Nasdaq Index and the Shanghai Composite Index in 2007-2010. And test empirically the effect between the volatility of stock prices and the banking system.The purpose of this paper is to answer the following two main issues: First, whether the volatility of stock price has effect on the vulnerability of banking system. The research on this paper shows that the transmission mechanism of the volatility of stock price affect the vulnerability of banking system are the transmission mechanism of monetary markets, credit markets, Market Risk, brokerage and so on. Stock prices' excessive rising and falling will increase the fragility of banking system. Second, how the volatility of stock price can affect the vulnerability of banking system. Study empirically on the relationship between the volatility of stock price and the fragility of banking system in VAR Model. The conclusion is the same asAmerican. Studies have shown that stock prices' excessive vibration will lead to heightened vulnerability of banking system. Although China's stock market is imperfect, it's still so important to the vulnerability of banking system that we must pay attention to it. Based on the theoretical and empirical analysis, this paper proposed appropriate measures to avoid the vulnerability of banking system.