Abstract
Foreign research has shown that the bank franchise value is the important mechanism of the bank’s risk self-discipline. However, the relationship between the franchise value and the risk behavior of our bank must be based on our special financial background. Before the implementation of explicit deposit insurance system in China, there has been an implicit deposit insurance system guaranteed by the government. The traditional literature suggests that the implicit deposit insurance system provides a strong guarantee for commercial banks, which may weaken the risk discipline effect of the bank’s franchise value, and the reasonable explicit deposit insurance system is superior to the implicit deposit insurance system. In the financial context of the explicit deposit insurance system, the self-discipline effect of the franchise value will be repaired. Based on the reality of establishing an explicit deposit insurance system in China, this paper uses the Tobin Q value to measure the franchise value of 16 listed banks in China. The relationship between the franchise value and risk of bank before and after the introduction of explicit deposit insurance is studied by using panel data model. The results show that before the implementation of the explicit deposit insurance system, the self-discipline effect of the franchise value is completely ineffective in the context of the government-guaranteed implicit deposit insurance system. The cross-item coefficient of the explicit deposit insurance system and the franchise value is significantly negative. It shows that the implementation of the explicit deposit insurance system has played a role in restoring the self-discipline effect of the bank’s franchise value.
Highlights
IntroductionZhao 180 ment, and banks can use more than their capital-scale liabilities to invest
The traditional literature suggests that the implicit deposit insurance system provides a strong guarantee for commercial banks, which may weaken the risk discipline effect of the bank’s franchise value, and the reasonable explicit deposit insurance system is superior to the implicit deposit insurance system
Based on the background of the system, this paper examined the relationship between the franchise value and the bank risk before and after the implementation of the explicit deposit insurance system in the first quarter of 2013 to the third quarter of 2016
Summary
Zhao 180 ment, and banks can use more than their capital-scale liabilities to invest. This determines that the bank is a high-risk industry. The regulatory authorities clearly stipulate the bank’s access conditions and ensure the orderliness and stability of the banking industry through rigorous scrutiny and restrictive issuance of business licenses. The value of the business license brought by industry access restrictions is called the franchise value. Once banks fail to operate, they are faced with the loss of the franchise value which can obtain the future excess profits. The management will take the initiative to strengthen the management of their business risks, to ensure the stability of the operation of the agency, resulting in the risk of self-discipline
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