Banking Competition and Risk-Taking

From the perspective of competition in banking sector and risk-taking of banks, this paper, based on the data samples of China’s 14 banks from 1997 to 2008, utilizes the non-structural method of PR model to empirically analyse the extent of market competition in banking sector and, based on panel data model, to analyse the relationship between banking competition and risk-taking. The results show that: China’s banking sector is in the state of monopolistic competition; there is a significant relationship between banking competition and risk-taking; the impacts of banking competition extent on the risk-taking of each bank are different; banking competition will lead state-owned banks (large banks) to take greater risks. Therefore, the author suggests promoting banking reform, controlling market access and improving the effectiveness of banking supervision.