The Risk Effects Of Interest Rate Liberalization On Commercial Banks

Since the1970s, countries gradually promote financial deepening to develop economic. As the core of financial deepening, the interest rate liberalization also becomes the mainstream trend of the national development of financial markets. With the deepening of China’s reform and opening up, financial reform is urgently needed and the interest rate liberalization also becomes an inevitable proposition. The interest rate liberalization can give a country economic development, but also risks and challenges to commercial banks. This paper introduces the results of the interest rate liberalization in China firstly, and combining with the practical experience of the interest rate liberalization in the international arena, suggests that China should promote interest rate liberalization reform in a progressive manner. Secondly, this paper analysis the interest rate liberalization risk to commercial banks in theoretical and empirical ways respectively. In theory, by analyzing the transmission mechanism of interest rate liberalization risk of commercial banks, this paper investigates the risks that commercial banks may suffer. In empirical, this paper use the Logistic model and sample of38countries to investigate the probability of commercial banking crisis caused by the interest rate liberalization. The empirical results show that the interest rate liberalization significantly enhances the probability of commercial bank crises, but the impact on systemic crisis and non-systemic crisis is different, so do the stage effects and long-lasting effects on the commercial banking crisis. Finally, the paper describes the revelations of the study, and combining with China’s national conditions, the paper put forward relevant proposals on response to the risks of interest rate liberalization to commercial banks.