An Empirical Study On Differentiated Supervision’s Impact On The Security Of Commercial Banks In China

Many countries have learnt from the financial crisis that differentiated supervision plays a significant role in preventing systemic risk. Some countries have already regulated their banks differentially and China implemented the differentiated supervision at the beginning of this century. Since that there are little literature on the relationship of differentiated supervision and banking security, this paper aims to enrich the research results in this field.This paper fully studies the theoretical basis of differentiated supervision and banking security from the game theory, risk theory and the input- output theory. After analyzing the status quo of Chinese banks, this paper sets up a simultaneous equation model to examine the relationship between differentiated supervision and banking security over the 2004-2013 sample period. This part was finished by setting up a simultaneous equation model, we used the three-stage least square(3SLS) to analyzes the relationship between the differentiated supervision the bank security, and according to the time for the sample return. Empirical results show that:(1) Differentiated supervision affects the security of Chinese commercial banks and the impact is different according to the bank size;(2) The impact of differentiated supervision on the banking security has relationship with the supervision periods and ways.(3) The differentiated supervision over capital structure also have significant but unsustainable influence on banking security. Based on the above results, this paper puts forward related suggestions from the aspects of regulatory index, business innovation and capital structure.