Original scientific paper
https://doi.org/10.1080/1331677X.2020.1820361
Bank competition in China: a blessing or a curse for financial system?
Chi-Wei Su
Meng Qin
Syed Kumail Abbas Rizvi
Muhammad Umar
Abstract
Owing to a lack of consensus on whether the competition among
the banks brings stability, or vulnerability in the financial system,
this research is aimed towards investigating the Chinese banking
industry. For this purpose, we have used the Granger and subsample time varying rolling window, in order to estimate the
dynamic causality of the competition in the banking sector, and
the systematic risk factors that follow, in China. The purpose of
exploring the two-way causality is to make the banking system
more stable, and also to provide new and first-hand evidence
that can aid in reducing the occurrence of systematic risks. The
results show that the competition in the banking sector has a
negative impact on the systematic risk. This means that the
increased competition in the banking sector will eventually lead
to a reduction in the systematic risk. The results of the study are
supported by the competition-stability hypothesis. Also, following
the results, the policy direction we propose is that the banks may
aim at reducing their systematic risks. They may achieve this by
increasing their market share and accelerating transformation, in
order to improve their competitiveness, which will help the banking system in China to achieve a sustainable form of stability.
Moreover, our findings will also be helpful for the Chinese
Ministry of Commerce (MOFCOM), which has been, over the years,
in the process of developing an assessment framework for bank
mergers, while also trying to minimize the tradeoff between competition and financial stability
Keywords
Banking competition; bootstrap; China: rolling window; systematic risk
Hrčak ID:
301226
URI
Publication date:
31.12.2021.
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