The Impact Of Interest Rate Liberalization On China Commercial Bank Risk-taking

China remove the regulation of deposit interest rate cap in 2015, which mark a big step forward and will profoundly affect China’s commercial banks. From foreign experience, interest rate liberalization will have a profound impact on the entire financial system, especially on the banking sector.This article uses theoretical analysis based on empirical research,and then drawn relevant recommendations. In terms of theoretical analysis, firstly, summarizing relevant theory of interest rate liberalization and risk-taking of commercial banks, Secondly, the paper describes the abroad practices of interest rate liberalization’impact on commercial banks, including developed countries like the United States, Japan and the developing countries like Thailand, India. Finally, this article describes the impact of interest rate liberalization on Chinese commercial bank exposures, which obtain that net interest margin narrow and then change bank operational condition and ultimately lead to changes in the bank’s risk-taking.For empirical analysis, this article, based on balance panel data from 2010~2014 of China’s 64 banks, tries to study the influence of interest rate liberalization on bank risk-taking when bank spreads narrowed. On the basis of the Hausman test, the article use the ―heteroscedasticity-sequence related" steady standard error, proposed by Driscoll and Kraay(1998) to estimate the fixed effects model. As for random effects model, "heteroscedastic-serial correlation" steady standard error is used on the basis of Hausman test and cross section test. The results show that: First, under the background of interest rate liberalization, the volatility risk of return on total assets and bankruptcy risk go rise, while the credit risk tends to decline; Second, higher operating efficiency, lower the LDR and higher capital ratios can help commercial Banks resist the impact of the liberalization of interest rates; Third, the state-owned commercial Banks and joint-stock commercial Banks suffered less than the city commercial Banks, while the challenge for the rural commercial bank is the largest.