| Financial Disintermediation is the removal of intermediaries in a supply chain of financial institutions, such as banks, savings and loan associations, in order to invest funds directly. The term was originally applied to the banking industry in 1960s with domestic inflation stimulating the rise of interest rate. In responding, the U.S. government issued the Regulation Q, which limited the interest rate paid on interest bearing accounts that were insured by the Federal Deposit Insurance Corporation. However, for the profit-seeking nature of money, the depository funds have been withdrawn from the banking system and invested to the money market as the interest rate of the money market being higher than that of deposits provided by financial institutions. The principle behind the case fits all the market-economy countries, without exception of China.Since the 21st century, the financial disintermediation is more prominent in China, for the improvement of the capital market, diversification of the investment and financing channels, the development of information technology and the rise of the Internet Financing. There are actually two aspects of challenge to the banking business, which are respectively from the deposit disintermediation on the residents and the disintermediation of lending on enterprises. On the one hand, various investment products, convenient payment and reclaim channels allow residents to be more inclined to invest into the high-yielding financial instruments of stocks, bonds, funds etc., rather than in the bank. On the other hand, a large number of companies keen to issue stocks and bonds to meet their financing needs with the initiation of GEM and SME board and the emergence of third-party financial service platform relieving SMEs’ burden in financing. The growth of financial disintermediation deteriorates the assets and liabilities business of commercial banks, leads to capital circulation outside the banking system and weakens the financial intermediary role of commercial banks in the market.Financial disintermediation brought a profound impact to the traditional business of commercial banks, causing the attention from practitioners and academic researchers. As the main part of China’s financial industry and financing system, the commercial banks play the vital role in stabilizing the national economy. Since the interest income is the main income source of the commercial banks, the financial disintermediation causes the fall of bank interest, which made the traditional profit model of the commercial banks be badly hit. Consequentially, China’s commercial banks confront the predicament of descending profitability, fierce competition among the industry and the increasing liquidity and interest rate risks. Besides, the effectiveness of national monetary policy will be also affected, because the funds withdrawn from the disintermediation of commercial banks is bound to disturb the fund supply channels and the total amount of monetary market. With the continuing of financial disintermediation, to research its impact on commercial banks is paramount. Due to the late development of China’s financial disintermediation, the research is imbedded with the complexity of situation analysis and restricted in collecting the relevant data which is rare and hard to obtain. In review, most of the domestic study in the field focuses on qualitative analysis instead of quantitative analysis and empirical research. Therefore, it is necessary to conduct an empirical analysis to the effect of financial disintermediation on commercial banks further in theory and practice.The paper focuses on the financial disintermediation impact analysis and its extent to China’s commercial banking. Based on the fact that financial disintermediation impacts commercial banks and on China’s characteristics, the paper points out firstly that the research is necessary. In the following, through combing the domestic and foreign literature on financial disintermediation, it analyzes the causes, development status of financial disintermediation and its impact on commercial banks currently. Furthermore, by selecting the data of the amount of equity financing, bond issuance and premium income from the first quarter of 2001 to the third quarter of 2015 as a measure of financial disintermediation metrics, the paper conducts an empirical research with combining the increased amount of deposits and loans as the traditional business metrics of China’s commercial banks. It illustrates the effect and extent on the deposits and loans business of China’s commercial banks by financial disintermediation in details, using Granger causality test to determine the interaction between the variables and establishing the VAR model and impulse response function on the basis of co-integration test. The paper finally draws an empirical finding that China’s financial disintermediation is irreversible and growing rapidly though still in its infancy with complex correlated impact factors, and the intensification of financial disintermediation has reduced the amount of deposit and loan of commercial banks. In addition, the paper also puts forward the related policy recommendations on how to deal with the financial disintermediation by commercial banks, such as to transform business development mode rapidly, to optimize the internet and mobile banking, to innovate financial products and services, to foster new markets on improved customer system, to establish a comprehensive risk management system.The paper is organized as follows:The first chapter introduces that the phenomenon of financial disintermediation appeared in the mid-20th century American has occurred in our country. After introducing the concept of financial disintermediation, it has analyzed the social financing scale and structure since 2002 to point out that the indirect financing represented by commercial banks is declining, compared with the numerous and increasing direct financing channels. On the basis, it concludes the important reality of the undergoing financial disintermediation in China and makes if firm that to further study the impact on the business of commercial banks is necessary and significant. At the final part, it emphasizes its innovation on the research topics selecting, model variables and research methods. Meanwhile, it indicates the research fails to depict the impact of financial disintermediation in its full sense and does not include the data of financing channels in the model because of the difficulty to obtain.Chapter two summarizes the domestic and foreign literature on financial disintermediation mainly in two aspects. One is to learn the concept, causes, effects and efficacy of financial disintermediation and the other is to study the impact of financial disintermediation on commercial banks and the bank’s responding strategies. In the process, the author finds out that the research at abroad starts earlier with a wide research range and deep content. In contrast, the domestic academic study in the field is still at the preliminary stage with few substantial results. At the end, the author demonstrates the necessity of the research once more from the perspective of literature review by explaining that the related empirical research is limited even though financial disintermediation generates heavy impact on China’s commercial banks.The third chapter bases on the cause of financial disintermediation at China to analyze the impact of financial disintermediation to the commercial banks, which is developed in degree, and raise the need of this research from the perspective of commercial banks. The author starts the analysis from five aspects:stimulation of direct financing policy, non-bank financial development, development of information technology and change of residents’financial management concepts. In following, the author explains the current situation and the performance of financial disintermediation with the purpose to reiterate the increased disintermediation between deposits and loans, the obvious disintermediation of SMEs and intensifies the presence of a variety of non-bank lending practice as the third-party payment, private equity funds, P2P credit service platform and other gradually developed industries. Finally, the author’s analysis extends to the facets of the profit sources of China’s commercial banks, the trend of lending business and its future development.The fourth chapter not only details the quantitative methods and models, but also describes the reasons for the use of VAR model and its advantage. The author expounds the modeling in three steps at the end:firstly, to examine each variable with the method of Granger Causality Test; secondly, to establish vector autoregression (VAR) model and model estimation; thirdly, to conduct impulse response function analysis. The author believes that the measurement is useful to depict the degree of impact that financial disintermediation results in bank deposit and loan business, which has laid a solid foundation of empirical research method for this study.The fifth chapter analyzes the cause and source of the selected variables and has done some simple descriptive and trend analysis besides processing the variables. The author indicates that the statistics of sample data is volatile, which is not conducive to the estimated model and not suitable for OLS regression either, after selecting the data recorded from 2001 to 2015. Meanwhile, the author points out that financial disintermediation has promoted the growth of securities, bonds and insurance and other industries of China’s capital market, accompanied with the increased volatility of the amount of bank deposits and loans in recent years. The author thinks there contains the potential correlations in between.The sixth chapter includes the complete empirical analysis and is the core section of the paper, which examined the impact of financial disintermediation on commercial banks from both the assets and liabilities in details. The author first proves that the data obtained are stationary series by using ADF data stationary test. Secondly, the Granger (Granger) causality test is utilized to clear the causal relationship between the variables. Thirdly, on the basis of co-integration test, the vector autoregression (VAR) model and impulse response function (IRF) are established to analyze the extent of impact that the financing scale of the stock market, bond market and insurance conveys to the traditional business of commercial banks in China.Chapter VII concludes Chapter VI’s researching in following findings: financial disintermediation in China is still at an early stage of development, but the trend is irreversible and the impact could not be ignored. Financial disintermediation on the one hand causes the loss of deposits and loans of commercial banks and further decline in bank profitability, on the other hand brings challenge for commercial banks and promotes their transformation. Therefore, the author makes the targeted recommendations:to face the challenge of financial disintermediation, China’s commercial banks should transform their business development strategies quickly, take full advantage of web and mobile finance, innovate the financial products and services, improve the customer system to foster new markets and establish a comprehensive risk management system.The innovation of this paper is reflected in two angles:The first is the innovated variable selecting. The traditional model does not consider the premium income, money supply and CPI. However, as the financial disintermediation have an impact on commercial banks, on the background of the fast growing capital market in China, the insurance market become more as the channel of direct financing. Therefore, it is demonstrated that the variable selection in the paper is reasonable, because it conforms with the money demand theory that money supply and CPI is bound to the change of deposits and loans. Second, the innovation is also displayed in the research methods. Traditional research is to estimate the VAR model first, and then conduct Granger causality test, which though uses all of the variables in the analysis, fail in exploring the relationship between the variables and the residual variables in the model. The paper has changed the sequence by using Granger causality test first to identify the causal relationship between variables to weed out the two strongly correlated variables of money supply and CPI to verify the test. In addition, since our aim is to study the impact of financial disintermediation on deposits and loans instead of focusing on how the GDP in the past affects deposits and loans, the GDP should be treated as exogenous variables, only playing the role of explanatory variable.The Deficiency of the paper could be listed in two points:first, the paper does not research the impact of financial disintermediation in its full sense, due to the limited research scope, breadth of capital market and complexity of the financial disintermediation impact. Second, the quantitative model does not input the variable of financing channels and consequentially could not make the quantitative analysis of the impact because of the difficulty to obtain the third-party data. |
