Safety Assessment And International Comparative Study Of Chinese Commercial Banking Industry

Since the 1970s, some new characteristics of banking crises had risen on a global scale:breaking out in a broader region, resulting in a deeper damage, and more contagious. Governments and supervision organizations have been carried out brand-new measures to deal with every banking crisis, and concluded to some up-to-date regulatory standards. The problem concerning bank safety, however, has never been relieved. The reasons could be complicated though, one of the critical factors is the deficiency of a comprehensive and integrated risk assessment model for banks.The 2007 subprime crisis has revealed a new issue for bank safety. The commercial banks in the U.S. and Europe invested in numerous financial derivatives, which were reconstructed by asset securitization and structured financing techniques. In this case, the nonlinear risks are easily hidden in these complex derivatives, and commercial banks are more difficult to assess and guard against the nonlinear risks.This paper improves the Z-score model based on VaR, and constructed a novel Z-score model based on nonlinear VaR, which could easily take the nonlinear risk into consideration. The theory and empirical analysis suggests that this new model is reliable and effective. Meanwhile, the empirical result also proves that the Gamma-Johnson computing method is a better fit than Gamma-CF method for bank safety assessment.The main results for this paper are as follows:Firstly, the assessment of safety for banks in China and worldwide. (1) By vertical comparison, the bank safety level for China banking sector is increasing. Generally, the safety level of state-owned banks is lower than joint-stock banks. Specifically, between 2004 and 2007, the state-owned banks were a bit safer than joint-stock banks, which was resulted by the reform of state-owned banks in those years. However, we think the implicit guarantee by governments would actually improve the safety level of state-owned banks. In recent years, the gap of the safety level between state-owned banks and joint-stock banks has been narrowed. (2) By horizontal comparison, between 2001 and 2006, the safety level of China banking sector is below the safety level of foreign banks; since the 2007 subprime crisis, the safety level of China banking sector starts to surpass the foreign banks. And now, they tend to converge to a similar safety level. (3) The safety level of China banking sector is similar to the group of global non-systemic important banks. The empirical analysis suggests a nonlinear relation between the bank safety level and extent of global systemic importance of banks, i.e. positive, negative, then positive. Therefore, it is rationally predicted that the safety level of China banking sector is going to rise while the opening-door policy for China banking sector continues.Secondly, the research into the difference of bank safety level of different groups. (1) The gap of safety level between state-owned banks and joint-stock banks is mainly affected by various business structures and the change in non-performing loan ratios. (2) The gap of safety level between China banking sector and foreign banks is mainly affected by different GDP growth in countries, the changes of market concentrations, and various business structures of banks.