Study Of The Influence Of Financial Market Power On Performance Level Of Commercial Banks In China

With the further development of economic financialization,the financial industry has become an essential componet in China’s economy,and the stability and prosperity of financial market is directly related to the increase in overall efficiency improvement of the national economy and social welfare.In history,the four state-owned commercial banks have long occupied a monopoly position in China’s banking industry.Since the Reform and Opening up Policy in late 1980 s,in order to adapt to the urgent need of market economy,our country has gradually introduced a variety of financial participants.Meanwhile,with the comprehensive development of liberalization in financial market and application of various financial technology,in additional to the traditional non-interest banking business,Chinese commercial banks strive to expand their business line to create new profit model,including investment banking,financial management,securities brokerage and other non-interest business.With the rapid development of non-interest business,financial business has become an important profit growth point for all types of commercial banks.Because of the market attributes and risk characteristics of financial products,there has been a significant change between the financial market structure and the traditional banking business.In recent years,the financial market of commercial banks in China has developed rapidly.By the end of June 2018,there were 915,000 financial products issued by 562 banking financial institutions in the financial market,with a balance of 28.86 trillion yuan,a decrease of 676 billion yuan from the beginning of the year.Since 2016,the financial growth rate of large commercial banks and joint-stock banks has been slowing down;whereas both city commercial banks and agricultural business banks have achived significant increase in financial management scale and product quantity,and the financial market structure of commercial banks is becoming increasingly decentralized.Meanwhile,in order to obtain more market share,banks have engaged into a “price war” by raising theexpected yield of their own financial products.However,whether the more diversified financial market structure and more fierce and liberalized price competition can improve the performance level of commercial banks,has caused widespread concern in the academic and theoretical circle.Based on the existing research results,this thesis takes the data from top 30 Chinese commercial banks in the financial business scale from 2010 to 2017 as sample to build the Beh Finn Dahl Index for measuring the degree of financial market concentration and the Lerner Index for measuring the degree of price competition of financial products,and then studies how the performance of commercial banks is effected by financial market power represented by financial market concentration and price competitiveness.The research conclusions of this paper support the traditional structural performance hypothesis to a certain extent.When the market concentration of the company is relatively high,some companies have strong market power.They obtain product prices that are higher than the general level of the market to obtain monopoly profits.The greater the possibility(Bain,1951).Corresponding to the financial market,when the market concentration of the wealth management market is at a relatively high level,the major financial commercial banks no longer have a strong incentive to conduct price wars,and each major commercial bank has a certain price in the region.As a result of leadership,various banks in the wealth management market generally have lower prices for products.With lower NII prices,profit margins increase,bank profitability increases,and credit risk levels decline.In addition,the results of this study also demonstrate the "competition-fragility theory" hypothesis.Just as the United States began its financial liberalization in the 1970 s,access restrictions and interest rate controls have largely eased,and competition has intensified so that financial institutions engage in high-risk investment.Activities led to the eventual closure of more than700 savings and loan associations in the 1990s(Keeley,1990).Under normal circumstances,banks will work hard to reduce their level of risk exposure and protect the value of their franchise rights,so as to obtain high profits on the controlling end.However,with the increase of market competition,commercial banks take greater risks and reduce the bank’s operating stability.In the current financial products market of China,banks are forced tocompete with financial products to enhance product profitability.This behavior will result in the pricing of products not entirely determined by their characteristics.On the one hand,the over-homogeneity competition between banks will directly increase the cost of debt and reduce the profitability of their financial products.On the other hand,banks will have adverse selection behavior,enhance the inherent risk of the product and indirectly enhance the risk level and risk probability of bank default.Considering the rapid pace of development of financial products currently on the market,if not the risk control,then the bank between the financial market price war will continue growing,healthy and stable operation of the entire market will also be harmful.It may even be involved in other financial business areas,causing an system crisis.