The Nonlinear Relationship between Banks Competition and Financial Stability in China

  •  Shehong Hou    


For the deeply impacts of China’s banks stability on itself and world economy, we use dynamic GMM method to investigate the nonlinear relationship between banks competition and their stability. When competition is lower than certain level, the “competition-stability” comes into existence, otherwise “competition-fragility” holds on. 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. The separate supervision and separate operation of financial industry may be the main reasons for the above results. China should take some actions to maintain appropriate competition for the stability of its banks system.

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