An Empirical Study On The Relationship Between Banking Competition,Efficiency And Financial Stability In China—Based On The Background Of Fully Opening Up Of Banking Industry

The banking crisis occurred frequently,especially in the financial crisis of 2008,causing concern all over the world.Banking stability is more and more important for the regulatory authorities and it is basic regulatory objectives to prevent systemic banking crisis in China.Thus,the research on stability of Chinese banking industry has both important theoretical significance and practical implications.Since the beginning of 1979,China's banking reform has gone through the stages of institutional restructuring,commercial reform,shareholding system reform and post crisis period.Banking reform aims at enhancing the competitiveness of banks,improving the efficiency and stability of banks,accelerating the modernization of banking industry,and better serving the development of the real economy.This paper mainly studies the impact of China's banking competition and efficiency on stability.Since 2006,China's banking industry has been fully open to the outside world and encouraged foreign banks to run banks in China as a legal person.Foreign banks not only bring capital,but also bring advanced management,technology and professional talents.Because foreign banks are more efficient in management and more modernized in internal structure,domestic banks are facing strong competition from foreign banks after the full liberalization of banking industry.After the financial crisis,the supervision department is committed to isolating the negative effects of the foreign banks' parent bank,and maintaining the stability and development of foreign banks.In the context of full opening,the relationship between competitive efficiency and stability of foreign banks is also an aspect of my research.Basing on the panel data of 129 banks based over years 1995-2015,this thesis respectively uses H value,Boone index,Lerner index and Lerner index adjusted efficiency comprehensive to measure competition in the banking sector,uses CR5 and HHI index to measure the degree of banking concentration,estimates bank efficiency using single stage stochastic frontier approach,and uses Z-score to measure the bank's stability.This thesis aims to analyze the relationship between competition,efficiency and stability in China's banking industry and whether the reform process has any impact on the relationship.The research finds that banking competition leads to financial instability.The empirical results support the "competition-fragility" hypothesis,that is,the franchise-value hypothesis.Competition improves the financial risk by reducing the bank's profit level and capital adequacy ratio,and its influence varies with the process of the banking reform.We also find that bank ownership structure has a significant impact on financial stability.Foreign banks,state-owned banks and rural commercial banks are more stable than joint-stock commercial banks and city commercial banks.Banks with high concentration of ownership tend to be more stable.It is also found that the cost efficiency of Chinese banking is negatively correlated with stability.The higher the cost efficiency is,the lower the risk is,which is consistent with the behavior theory,and the profit efficiency is not related to stability.We also find that banking reform has greatly optimized the cost efficiency while changing the relationship between efficiency and stability.The correlation between cost efficiency and stability is less than the whole sample period at the beginning of reform,while the relationship between cost efficiency and stability is not significant at the later stage.