 Banks’ liability structure and risk taking: Evidence from a quasi-natural experiment in ChinaXiaoxiong Chen, Guanchun Liu, Yuanyuan Liu and Yanren Zhang Finance Research Letters, 2022, vol. 49, issue C Abstract: This study examines whether banks’ liability structure matters for their risk taking. Using a three-period model, we argue that a high deposit ratio lowers banks’ monitoring effort due to a low liquidity risk, causing banks’ risk taking to be greater. Taking the introduction of Macro Prudential Assessment (MPA) into China’s bank regulatory system in 2016 as a quasi-natural experiment, our difference-in-differences estimate shows that a reduction in wholesale funding increases bank risk as evidenced by higher risk-weighted assets, and this effect is more pronounced for banks with small market power, low capital requirement and high profitability. Further, increasing bank risk has a significant and positive impact on firms’ output growth through the lending channel, particularly for firms with greater business risk. Our findings provide a deep understanding of the link between banks’ funding liquidity and risk taking. Keywords: Banks’ liability structure; Risk taking; Liquidity risk; Difference-in-differences estimate; China (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:49:y:2022:i:c:s1544612322003257 DOI: 10.1016/j.frl.2022.103100 Access Statistics for this article Finance Research Letters is currently edited by R. Gençay More articles in Finance Research Letters from Elsevier |
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