The Market Power And Efficiency Of China’s Banking Industry

As a financial allocation of departments and the strategic position in the process of economic development, bank enjoy the government special policy over these years. But in the global financial market, natural monopoly and scale benefits make banks in the market structure with high monopoly. In our country, the big four state-owned banks is outstanding in monopoly. This article is based on monopoly with China’s banking industry, measuring the degree of monopoly, and then to study the affect of monopoly on banking efficiency.First, the preface introduced the idea of writing and application of the method and theory. The second chapter describes the related concepts of the market power and efficiency, then about literature review. Market power means the ability to control the market, not only in price, but performance in many other ways. The testing method of market power:the Lerner Index.Secondly, build related model of the bank market power and efficiency. I first derive a banking market forces to the Lerner Index expression, and then analyze the need of our banking sector boundary cost, such as natural selection SFA method to build frontier cost function, and then through the first derivative of marginal cost function, at the same time with the same SFA method to construct the forefront of profit function. On the cost efficiency-analysis, our country banking industry is strengthening in cost control ability. Secondly, calculate the banking of our country marginal cost and profit efficiency.Then, based on the quit life hypothesis, I establish the China’s banking market power and efficiency relation empirical models. This section is divided into two regression models, using data panel data, related data in addition to originate on the chapter of the empirical results and related yearbook. I regressed using the Lerner Index with the cost efficiency and profit efficiency, China’s banking industry in the cost efficiency and profit efficiency and Lerner Index relationship support "quiet life hypothesis", for our country banking industry, market power is not conducive to improving, cost control, and is not conducive to profit generation, so control of bank scale, relax the admittance system, break the bank to bank free import and institutional arrangement of China’s banking industry to reform and development of the necessary conditions.Finally, based on the results of this study, I give the policy suggestions:enhance China’s banks competitive atmosphere, optimize the structure of property rights, and encourage innovation in banks, deregulation and strengthen the internal control. These are also the problem that our country bank continued to reform and development must be faced.