The Mergers and Restructurings of Small and Medium-sized Banks and the Prevention and Resolution of Systemic Risks in the Banking Industry:Based on Multiple Networks
WANG Hui, QIU Yutao, CHEN Xu, ZHU Jiayun
School of Finance, Central University of Finance and Economics; Financial Research Center, Chinese Academy of Fiscal Sciences; Postdoctoral Research Center, Industrial and Commercial Bank of China
Summary:
In recent years, the mergers and restructurings of small and medium-sized banks (SMBs) have become a key strategy for local governments to promote regional financial reforms by streamlining institutions and improving quality. This paper constructs a multiple-bank network to explore whether mergers and restructurings of SMBs can effectively mitigate systemic risks in the banking industry. It examines differences between various merger proposals, and determines whether there are optimal boundaries for their impact on systemic risk under different macroeconomic conditions and policy support. This paper, drawing on case studies of mergers and restructurings in China, identifies common characteristics and formulates merger plans from a theoretical perspective. Using data from the balance sheets of nearly 900 banks between 2007 and 2023, it constructs a multi-network model to comprehensively analyze the impact of mergers and restructurings on systemic risk. The study proceeds as follows. First, we develop a multi-network model grounded in bank balance sheet structures to analyze the combined systemic risk impact of three asset classes: interbank assets, jointly held assets, and bank loans. Secondly, this paper systematically examines the practices of mergers and restructurings in China from the perspectives of disposal needs, merger methods, and bank characteristics. The study finds that the mergers and restructurings of SMBs primarily focus on enhancing bank stability, though there are certain discrepancies in the impact of different modes. Four theoretical merger schemes, based on asset size, asset allocation, network structure, and loan areas, are designed and tested separately for their effectiveness in mitigating systemic risk. Thirdly, given that local governments have provided financial support for the amalgamation of SMBs in recent years by implementing tailored policies for each province, this paper presents an analysis of the impact of local government capital injections on bank mergers when assessing the effectiveness of merger and restructuring plans. In response to the practical problems of systemic risk prevention and resolution, such as how to determine the priority of rescue and the differentiated impacts of various shocks, this paper further conducts robustness tests and comprehensively evaluates the applicability of various merger and restructuring plans. The findings of the research indicate that: Firstly, from the perspective of ex ante prevention, the merging of SMBs with similar scales, diverse configurations, close business connections, and similar loan regions has the potential to reduce systemic risks. Secondly, from the perspective of ex post resolution, within the constraints of limited capital injection, priority should be given to the rescue of banks with large asset scales, diverse configurations, and close connections with other institutions. In evaluating the cost of capital injections for the purpose of bank rescue, priority should be given to the strategic integration of large banking institutions with smaller, more regionally focused banks. Local government fiscal credit enhancement and capital injection measures contribute to enhancing the effectiveness of financial risk mitigation. Thirdly, when facing a wide range of relatively weak external shocks, the merger plan based on loan regions can play a certain role. In light of the aforementioned research conclusions, the following policy recommendations are put forward in this paper: Firstly, in order to formulate appropriate merger plans, it is necessary to adhere to the principle of “one-bank-one-policy”, and comprehensively consider factors such as the macroeconomic environment, the strength of SMBs themselves, and the financial resources of local governments. Secondly, establishing an emergency response mechanism for banking risk events in crises is imperative. In light of the constrained financial resources, it is more efficient to prioritize the rescue of systemically important banks. It is still necessary to closely monitor the situation after the event and provide corresponding policy and financial support in a timely manner. Thirdly, the toolbox for the governance of systemic risks in the banking industry should be enriched. A comprehensive approach should be taken, utilizing methods such as capital supplementation and mergers and restructurings to classify and resolve risks, and integrating efforts to advance the risk disposal and transformation of local small and medium-sized financial institutions.
王辉, 邱育涛, 陈旭, 朱家雲. 中小银行合并重组与银行业系统性风险防范化解——基于多重网络的研究视角[J]. 金融研究, 2025, 540(6): 76-95.
WANG Hui, QIU Yutao, CHEN Xu, ZHU Jiayun. The Mergers and Restructurings of Small and Medium-sized Banks and the Prevention and Resolution of Systemic Risks in the Banking Industry:Based on Multiple Networks. Journal of Financial Research, 2025, 540(6): 76-95.
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