By using data of 24municipal commercial banks in China from 2008-2013, this paper adopts the GMM model and the threshold panel data model to empirically study the effect of interest rate marketization and price competition on the risk of municipal commercial banks by dividing the bank risk into the four aspects as income volatility, bankruptcy risk, the capitalization level and the bad credit risk. The results show that the increasing bank price competition caused by the marketization of interest rate of deposit and loan will increase the income volatility and the bankruptcy risk of municipal commercial banks and will not be conducive to raise the level of capitalization and will increase the risk of bad loans. There exists the effect of nonlinear price competition threshold of interest rate marketization on the risk of city commercial banks and only when the price competition caused by the marketization of interest rate exceeds the threshold value, the income volatility will significantly increase. Otherwise the marketization of interest rate will reduce income volatility if the price competition is moderate.