The nonlinear relationship between banks competition and financial stability in China

ABSTRACT

We use difference GMM method to investigate the influence of banks competition on financial stability in China. The result shows there is an optimal competition level for China’s banks system. The stock market disaster in 2015 does not have significant influence on the z scores of banks, but it caused the non-performance loans increase evidently. This may be the results of China’s separate supervision and separate operation of financial system. Appropriate competition level is essential for China’s banks system.

KEYWORDS:

• Difference GMM
• banks competition
• policy implications
• non-linear relationship

JEL CLASSIFICATION:

• C23
• G21
• G33

Acknowledgments

I would like to thank my family, just their supporting help me complete the work, and I also thank my director Professor Yang Jin Qiang who gave me much valuable suggestions and comments for the research.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Funding

This work was supported by the Shanghai Education Science Research Project [No. C2021299]; Key Curriculum Construction Project of Shanghai Dianji Universityute [No. k20190015].