1 Does Financial Regulation Affect the Profit Efficiency and Risk of Banks? Evidence from China’s Commercial Banks Preliminary draft Tung-Hao Lee∗

The goal of financial regulation to enable banks to improve liquidity and solvency. Stricter regulation may be good for bank stability, but not for bank efficiency. This research aims to study the characteristics of China's financial regulation and explores how the regulation affects the profit efficiency, risk of China commercial banks. In addition, we also explore the trade-off relationship between efficiency and risk. Unlike other studies, the study uses bank asset as a classification standard from the financial risk and differential regulatory point of view. The empirical results indicate that an increase in provision coverage ratio, on the other hand, can reduce the risk of large banks. A higher cost to income ratio implies a lower efficiency and more risk for large banks. On the contrary, these two ratios had no effect on the risk of small banks. Therefore, the CBRC regulates the provision coverage ratio and cost to income ratio seems meaningful for large banks. Small banks with higher capital adequacy ratio and leverage had a higher efficiency and a lower risk. For small banks, the loan to deposit ratio increases as risk increase. A higher loan to deposit ratio implies a lowe