The Impact Of International Capital Flow On The Stability Of Bank System In Emerging Markets

With the gradual opening of the capital account in emerging market countries, the status of emerging market countries in international capital flow pattern increases gradually. Large-scale international capital inflows and outflows of emerging market countries, where financial system is not mature, may lead to greater impacts. International capital inflows lead to inflation and asset bubbles, while international capital outflow may bring depreciation pressure to a country’s currency, causing disturbance of the domestic macro-economic order. Several financial crises of emerging market countries occurred at the end of last century are almost related to international capital flows. After those financial crises, scholars at home and abroad pay more attention to studying international capital flows and stability of banking system. In this paper, based on the results of scholars’research, the "BRIC" are selected as the representative of emerging market countries. International capital flow pattern and bank system reform process of emerging market countries will be presented and compared to show the commonness and individuality of different countries. Then recommendations will be put forward for emerging market countries to maintain the stability of the banking system facing international capital flows.This paper is divided into six parts. The first part is the introduction, which mainly introduces background, theoretical and practical significance of the topic, the framework, main contents, basic points of view, innovations and shortcomings.The second part is the literature review. This part interprets the main concepts by presenting the views of different scholars, including international capital flows, the stability of the banking system and emerging market. Then theories of international capital flow, related theories of stability of the banking system and researches on the relationship are arranged. There are different views on the how international capital flows affect stability of banking system.The third part is theoretical analysis. This part analyzes the influence of international capital flows on the stability of banking system mainly from the two aspects:Firstly, international capital flows affects its stability through bank’s balance sheets directly; Secondly, international capital flows indirectly impact the banking system through various macro-economic variables.The fourth part is the comparative analysis. This part reviews the history of the "BRIC" capital account liberalization and banking system reform. It then gives comparative analysis of the difference of international capital flow scale and structure, as well as the index related to the stability of the banking system among "BRIC". Brazil and the Russian financial crisis are applied as cases to describe the relationship between international capital flows and bank crisis.The fifth part is the empirical analysis. Based on the existing research results, IBSS index is developed to represent the stability of bank system. Different forms of international capital flow and some macroeconomic variables are selected as explanatory variables. The fixed effect model and the multiple linear regression equation are used for analyzing cross-country differences in the influence of international capital flow on the stability of the banking system.The sixth part is the recommendations. This part gives the conclusions. The establishment of risk prevention mechanism, reasonable and effective capital controls, and flexible policy mix are put forward from the aspect of strengthening international capital flow management. The establishment of credit risk management system, the construction of the deposit insurance system and enhancement of banking supervision suggestions are put forward from the aspect of promoting the reform of the banking system.