Study On Effects Of Political Connection, Monetary Policy And Market Power On Risk-taking Behaviors Of Commercial Banks In China

Financial institutions’ excessive risk-taking behavior is the underlying reason ofAmerican subprime mortgage crisis and the following worldwide financial storm,worthy of research and reflection by the Chinese banking industry. Due to historical andinstitutional reasons, China’s banking industry had accumulated a large amount ofnon-performing loans. Establishment of the state-owned asset management companiesmade the non-performing loans balance began to decline in the short term. The listingsof commercial banks forced the risk management to upgrade in the form of reversedtransmission mechanism, which laid a sound foundation for prudent bankingmanagement in the long term. Hence the study on influencing factors of bankrisk-taking behavior has certain theory value and practical significance.This dissertation analyzes bank risk-taking behaviors theoretically, from theaspects of bank risk measurement, the source of bank credit risk and the optimization ofbank risk-taking behavior. Based on analysis of formation、development and status quoof China’s commercial banks non-performing loans, this paper discusses the influencefactors and formation mechanism of China’s banking risk-taking behavior theoretically.Qualitative research shows that government interference is a common phenomenon forChina’s banking industry management; periodic economic fluctuation and monetarypolicy alteration will affect bank risk-taking behavior, while the banking industry maylack the appropriate responding measures; the bankers may take more prudent measuresto maintain the hard-won franchise value of strong market power banks, while thesufficient capital of strong market power banks may induce the bankers to take theirchances.On the basis of a comprehensive analysis for the monetary police transmissionmechanism and banking market competition in China, taking political background ofbank executives as political related variable, the quantity of narrow money supply、thequantity of quasi-money supply、statutory deposit reserve ratio、benchmark interest forloan and refinance rate as monetary policy variables, the Lerner Index as market powervariable, using the annual data of the16listed banks in China from2000to2010, thispaper studies the effects of political connection, monetary policy and market power onrisk-taking behaviors of commercial banks in China empirically. The empirical resultsshow that, political connection、quantity of narrow money supply、benchmark one-year lending rate of recent two years for commercial banks have significant positive effectson the risk-taking behaviors of commercial banks, while quantity of quasi-moneysupply and refinancing rate exert significant negative influences on the risk-takingbehavior of commercial banks; Political connection and market power have asynergistically significant negative effect on the risk-taking behavior of commercialbanks, while statutory deposit reserve ratio and market power have a synergisticallysignificant positive effect on the risk-taking behavior of commercial banks.On basis of the research results, this paper proposes suggestions on guardingagainst and dealing with excessive bank risk-taking behaviors, from the perspective ofgovernment regulation and bank management respectively.