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State Aid and Competition in Banking: The Case of China in the Late Nineties

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  • Xiaoqiang Cheng
  • Patrick VAN CAYSEELE

Abstract

A reduced form model where banks can pursue other goals than profit maximization is presented. This allows us to test for behavioral changes of banks over time. This model provides a framework to evaluate whether moral hazard issues may plague banks receiving state aid, which concerns greatly the recent debate on government intervention in financial markets during the global financial crisis in 2008. To test the impact of state aid, a natural experiment in the banking sector in China in the 1990s is examined. The possibility of receiving state aid triggers moral hazard prone conduct cannot be rejected.

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  • Xiaoqiang Cheng & Patrick VAN CAYSEELE, 2010. "State Aid and Competition in Banking: The Case of China in the Late Nineties," Working Papers id:2435, eSocialSciences.
    • Handle: RePEc:ess:wpaper:id:2435
    Note: Institutional Papers
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    Cited by:

    1. Hasan, Iftekhar & Marinc, Matej, 2013. "Should competition policy in banking be amended during crises? Lessons from the EU," Bank of Finland Research Discussion Papers 7/2013, Bank of Finland.
    2. Tedeschi, Gabriele & Recchioni, Maria Cristina & Berardi, Simone, 2019. "An approach to identifying micro behavior: How banks’ strategies influence financial cycles," Journal of Economic Behavior & Organization, Elsevier, vol. 162(C), pages 329-346.
    3. repec:zbw:bofrdp:2013_007 is not listed on IDEAS
    4. Matej Marinč & Mojmir Mrak & Vasja Rant, 2014. "Dimensions of Bank Capital Regulation: A Cross-Country Analysis," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 61(4), pages 415-439, September.
    5. Hasan, Iftekhar & Marinc, Matej, 2013. "Should competition policy in banking be amended during crises? : Lessons from the EU," Research Discussion Papers 7/2013, Bank of Finland.
    6. Marinč, Matej & Rant, Vasja, 2014. "A cross-country analysis of bank bankruptcy regimes," Journal of Financial Stability, Elsevier, vol. 13(C), pages 134-150.

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    More about this item

    Keywords

    banks; moral hazard; Europe; history; banking; crisis; commercial banks; Panzar –Rosse Model; monopoly environment; revenue maximization ; output maximization; revenue elasticity; United Statesgovernment intervention; china; financial markets;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm

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