The Research On Relevance Of China’s Real Estate Market And Banking Systemic Risk

In the United States, the subprime mortgage crisis triggered by the bursting of the real estate market led to the global financial crisis, which not only broke the U.S.financial system, but also caused great damage around the world. After that,supervisors in every country have been aware of he tremendous power of systemic risk, and concerned about the relevance on real estate credit risk and commercial bank systemic risk.In the past decade, China’s real estate industry developed rapidly, and it rely heavily on commercial banks’ credit. As real estate industry is a pillar industry of the national economy and commercial banks play a crucial role in the whole country, it is necessary to pay attention to their relevance. The purpose of this paper is to explore the potential systemic risk that existed in Chinese real estate market and how to restrain the risk through implementing effective financial regulation in real estate.This paper starts with an overview of relevant theories of real estate market and systemic risk of banking. It also describes the basic features of domestic real estate industry through the data, and analyzed how real estate credit affects commercial banks systemic risk in theory.Secondly, the paper summarized four aspects of a total 15 factors which has impact on banking system risk, and use principal component analysis method to build a banking system risk index to China’s banking system stability in past 20 years.Thirdly, the paper built VAR model of banking system risk, real estate credit growth rate and housing prosperity index, through the impulse response and variance decomposition method and granger causality test to verify their relevance. The results show that the support of bank credit will promote the development of the real estate industry, but the excessive expansion of the credit scale may lead to the real estate bubble, which will adversely affect the stability of the banking system.According to the conclusion above, and based on the perspective of preventing systemic risks the paper put forward some policy recommendations. First considered controlling banking system risk as an important goal of regulation, and strengthen the management of real estate credit to control banking system risk. Second promote the real estate finance innovation to diversify banking system risk. Thirdly, establish macro-prudential supervision system of real estate industry.