Research On The Impact Of Financial Decentralization On The Risk-taking Of Urban Commercial Banks In China

Since the establishment of China’s first urban commercial bank in 1995,the number and asset size of urban commercial banks have grown rapidly.Urban commercial banks have become an important part of China’s banking system to support local economic development.Since 2017,multiple risk events of urban commercial banks have shown that the risks of urban commercial banks are worth paying attention to.There is a significant difference between urban commercial banks and state-owned large banks.The shareholders of urban commercial banks are mainly local governments,while the other part is distributed by the central government and the market.The degree of power distribution may affect the credit allocation of urban commercial banks.This article cites the financial decentralization theory from existing literature to analyze the impact of financial resource allocation between central,local governments,and markets on the risk of urban commercial banks,and tests the credit structure channels.This article uses the equity structure and asset data of urban commercial banks and joint-stock banks to construct provincial-level financial decentralization indicators,including financial decentralization I that reflects the relative control and allocation of financial resources between the central and local governments,and financial decentralization II that reflects the relative control and allocation of financial resources between local governments and the market.The selected sample data mainly includes the equity structure,credit structure,main financial indicators,and local economic indicators of urban commercial banks from 2007 to 2020.Among them,the non-performing loan ratio is used to measure bank risk,and the core variable is the financial decentralization indicator.Using the two-way fixed effect model of control time and individuals,we use the lag term of core variables and instrumental variables to deal with endogenous problems,respectively replace the non-performing loan ratio with the non-performing loan provision coverage ratio,and replace the original financial decentralization indicators with the financial decentralization indicators calculated by the five major financial sectors for robustness test,and explore the mechanism of financial decentralization affecting the risk of urban commercial banks.The main conclusions drawn in this article include:Firstly,the impact of financial decentralization I on the risk of urban commercial banks is not significant.The reason is that financial decentralization I is at a high level,and urban commercial banks,as local banks,are not significantly influenced by the central government.Secondly,there is a U-shaped relationship between financial decentralization II and the risk of urban commercial banks.From the perspective of urban commercial bank risk,there is an optimal level of market decentralization in the local direction.The degree of decentralization in the local market is less than the optimal water level,and the greater the degree of financial decentralization II,the smaller the risk of urban commercial banks;The degree of decentralization in the local market is greater than the optimal water level,and the greater the degree of financial decentralization II,the higher the risk of urban commercial banks.Empirical evidence shows that decentralization towards the local market should be moderate,and mutual constraints between local governments and the market can help reduce the risk of urban commercial banks.Thirdly,the greater financial decentralization II,the higher the degree of decentralization in the local market,and the higher the proportion of wholesale and retail loans in urban commercial bank loans.Through mechanism analysis,it was found that the increase in financial decentralization II leads to an increase in the proportion of wholesale and retail loans,which increases the risk of urban commercial banks.Therefore,the proportion of wholesale and retail loans is one of the mechanisms by which financial decentralization II affects the risk of urban commercial banks.Fourthly,Financial Decentralization II has a significant negative effect on the proportion of largest customer loans in urban commercial bank loans,that is,the more decentralization in the local market,the lower the proportion of largest customer loans in urban commercial banks.Combining the existing literature research and empirical test,this paper believes that loan concentration ratio is one of the mechanisms that financial decentralization affects the risk of urban commercial banks.The main contributions of this article include: firstly,innovating and constructing macro environmental indicators for provincial financial decentralization.Use the obtained indicators to measure the financial resources controlled by the central,local governments,and the market,and explore their impact on the risk of micro individual urban commercial banks.Secondly,this article finds a non-linear relationship between financial decentralization and the risk of urban commercial banks,and calculates the extreme point.Thirdly,this article innovatively constructs financial decentralization instrument variables based on GDP grouping.