The Impact Of Banking Industry’s Market Structure On Bank Risk

People’s Bank of China fully has opened lending interest rates control of banking financial institutions since July20,2013. In the meantime, establishment route of private banks has become clearer since the18th CPC National Congress, which means competition of commercial banks will become more and more intense. Commercial banks play a critical role in China’s economic and financial system. Will change of banking market structure bring new risk? Hence this paper will research on the influence of market structure on risk of commercial banks.First of all, this paper analyzes banking market structure in our country and bank risk taking. Through market share, HHI index, product differentiation and market barrier, it makes measurement and analysis of China’s banking market structure. Meanwhile, it conducts characteristic analysis and determination of risk that China’s banking industry undertakes. Second, it analyzes the influencing mechanism of market structure on bank risk in theory. Based on theoretical analysis and taking16listed commercial banks as example, it makes empirical analysis of the influence of China’s banking market structure on risk of commercial banks. At last, it proposes policy suggestions to improve banking competition and control risk.Through research, this paper found:first, China’s banking industry has higher concentration ratio and problems such as homogeneous competition and higher market barrier, but banking industry is continuously moving from monopoly to competition. Second, although the non-performing rate of commercial banks in China decreases steadily, problems such as interest rate risk and liquidity risk become increasingly prominent because of interest rate liberalization and insufficient market liquidity. Third, through theoretical analysis, this paper found that banking market structure will affect bank risk respectively from methods of franchise value, enterprise probability of default and bank profit. Competition will damage franchise value, reduce bank profit and increase bank risk, while competition will also reduce enterprise probability of default and lower bank risk. Fourth, empirical research discovers that when banking industry moves from monopoly towards competition in a slower manner, competition will increase bank risk, while when competition accelerates, competition will reduce bank risk. At the same time, bank has to remain certain scale in competition so as to minimize bank risk. Therefore, directing at research conclusion, this paper puts forward targeted suggestions from perspectives of normalizing competitive order, controlling risk brought by competition and promoting moderate competition. To control risk, it has to accelerate competition, replacing monopoly as normalcy of banking market structure with competition.