In the context of the hindrance to coping with banking competition through traditional credit business, this paper employs the micro panel data of listed banks in China during 2002-2016 and System GMM estimation in its analysis of the impact of competition on bank’s risk-taking and its influence mechanism. The results show that bank competition significantly raises risk-taking of banks and restrains innovation, which in turn heightens the positive relationship between competition and risks as innovation mainly impacts risk-taking of commercial banks through risk dispersion. Therefore, the banking sector should actively diversify its competitive strategies and carry out business upgrading transformation while regulators should guide the banking industry in an orderly manner and set proper regulatory rules as a prevention of risk superposition from drop of innovation brought about by excessive competition.