The Study On The Relationship Of The Capital Account Liberalization And The Risk Of China’s Banking System

In 2013, the Asian Infrastructure Investment Bank, which was established by the president Xi Jinping initiatively, has been widely concerned by the international community since its beginning. The establishment of Asian Infrastructure Investment Bank is considered to be an important measure to improve the international discourse power of China and to improve the position of the RMB in the international currency.As a prerequisite for the internationalization of the RMB, capital account liberalization has been the focus of many scholars since the Asian financial crisis in 1997. They generally believe that the financial crisis in Southeast Asian countries, one of the reasons is too fast for the implementation of the opening of capital accounts, and because the not fully liberalized capital controls our country is undamaged. And after these countries did not stop the opening of the capital account, it is seems that the revenue of opening of the capital account is attractive.The opening of capital account in our country is advancing unceasingly along with the reform and opening up, and it is mainly used to alleviate the shortage of domestic capital in the reform and opening up. And with the opening of capital account, the size and frequency of cross-border capital flows will increase. On one hand it will increase the credit scale of commercial banks and accelerate the formation of asset price bubbles, On the other hand, when the return rate of the capital decreases, it will outflow from our country, which will lead to the increase of liquidity risk and credit risk of commercial banks. And when the banking system risk increases, the government will consider limiting the flow of capital to prevent the risk of continued to increase and spread, which will cause the degree of capital account opening decreases.The paper is divided into five parts:the first part is an introduction, which mainly introduces the background and significance of the research, the literature review, the whole framework and the innovation and shortage of the paper. The second part is the theoretical analysis. In which Firstly, we definite the capital account liberalization and banking system risk, review the measurement and metrics determination, as well as capital account liberalization will produce the macro risks and banking system risk generation mechanism, finally summarize the opening of the capital account and risk of the banking system combined together theoretically and detailly.The third part summarizes the historical process and current situation of China’s capital account opening and the status quo of the risk of the banking system. The process of the opening of the capital account is divided into four stages and summarizes the contents of the exchange rate policy, capital account opening, and the status quo of China’s capital account opening in each stage. The fourth part is the empirical part. Through the second part to determine the degree of capital account opening and the banking system risk measurement index, through the government website and the financial statistics database to extract and process the data, the relationship between the Grainger causal test and impulse response analysis, the corresponding results and analysis. The fifth part is the conclusion and suggestion. Through the theoretical and empirical analysis of the capital account opening and the banking system risk in the paper, the author make some suggestions to the government and banks with which they can deal with the banking system risk with the gradual opening up of the capital account.Through theoretical and empirical analysis of the relationship between the capital account opening and banking system risk, the results show that:First, in theory, with the increasing of the degree of the capital account liberalization, cross-border capital flows will increase,and then raise the capital size flowing to the bank system,which leads to the increasing of the size of bank loans,and non-performing.The risk of the banking system will rise eventuality. The high banking system risk, which in turn encourage the government to strengthen cross-border capital flows and the banks to improve credit audit and control credit scale, which leads to decreasing of the degree of the opening of capital account. There is a positive relationship between the two aspects. Second, the results of the empirical research on the relationship between the two aspects prove that the degree of capital account liberalization and the risk of the banking system has a two-way causal and positive relationship. That is the increase of the degree of capital account liberalization will increase the risk of the banking system, and in turn the reduces the risk of the banking system will limit the opening of capital accounts.Third, The results of the theoretical and empirical research on the relationship between the capital account opening and the risk of the banking system are the same, they all show that the increase of the degree of capital account liberalization will increase the risk of the banking system, and reduce the risk of the banking system will limit the opening of capital account.On the basis of the classical research, this paper tries to make a perfect index of money market pressure with the replacing the reserves to bank deposits ratio to the rate of M2 change. And the latest data is used to analyzing the relationship between them. Due to the lack of knowledge, the bank system risk index can’t measure the degree of the banking system risk measure yet, only can use the absolute value to judge the trend. Somebody gifted is needed to do the supplement research.