Abstract:

This essay divides Bank Finance Innovation into Reducing Project Monitoring Cost and Raising Investment Return Rate. It uses the methodology of Gambling Equilibrium in the circumstance of Wholescale Funding Market, combining with the methodology of Numerical Simulation, to explore the effect of the two types of Finance Innovation on Bank Risk-taking. The results show that, compared to the Finance Innovation of Raising Investment Return Rate, the Finance Innovation of Reducing Project Monitoring Cost is more effective to reduce Bank risk-taking, which is supported by panel data study. Moreover, the result gotten by Numerical Simulation shows that, at lower project revenues, the finance innovation of Reducing Project Monitoring Cost can reduce Bank Risk-taking (by increasing investment success rate), and that point us in the direction of promoting financial innovation.