Reserve requirements and the bank lending channel in China

Zuzana Fungáčová, Riikka Nuutilainen () and Laurent Weill
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Riikka Nuutilainen: Bank of Finland

No GRU_2016_008, GRU Working Paper Series from City University of Hong Kong, Department of Economics and Finance, Global Research Unit

Abstract: This paper examines how reserve requirements influence the transmission of monetary policy through the bank lending channel in China while also taking into account the role of bank ownership. The implementation of Chinese monetary policy is characterized by the reliance on the reserve requirements as a regular policy tool with frequent adjustments. Using a large dataset of 170 Chinese banks for the period 2004–2013, we analyze the reaction of loan supply to changes in reserve requirements. We find no evidence of the bank lending channel through the use of reserve requirements. We observe, nonetheless, that changes in reserve requirements influence loan growth of banks. The same findings hold true for other monetary policy instruments. Further, we show that the bank ownership format influences transmission of monetary policy.

Keywords: Chinese banks; bank lending channel; bank ownership (search for similar items in EconPapers)
JEL-codes: E52 G21 (search for similar items in EconPapers)
Pages: 31 pages
New Economics Papers: this item is included in nep-mac and nep-mon
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Published in Journal of Macroeconomics, Volume 50C, Pages 37-50

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https://www.cb.cityu.edu.hk/ef/doc/GRU/WPS/GRU%232016-008%20Laurent.pdf (application/pdf)

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Journal Article: Reserve requirements and the bank lending channel in China (2016)
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