Efficiency in China’s Banking Sector: A Comparative Analysis of Pre- and Post-Basel II Eras

Sunil Mohanty and Hong-Jen Lin ()
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Sunil Mohanty: Brooklyn College of the City University of New York, M. Koppelman School of Business, 2900 Bedford Avenue, Brooklyn, NY 11210, USA
Hong-Jen Lin: Brooklyn College of the City University of New York, M. Koppelman School of Business, 2900 Bedford Avenue, Brooklyn, NY 11210, USA

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2021, vol. 24, issue 02, 1-29

Abstract: This study investigates the effects of Basel II and Basel III capital adequacy rules and the regulatory framework adopted by Chinese banking regulators on the efficiency of the banking sector in China during the post-Basel II era (2007–2017) and compares the results with that of the pre-Basel II era (1996–2006). The study finds that both cost and profit efficiency of the banking industry have improved significantly from the pre-Basel II era (1996–2006) to the post-Basel II era (2007–2017). Subperiod analyses show that the risk-based capital ratio (Tier 1 capital ratio) is significantly positively associated with profit efficiency during both pre- and post-Basel II eras. Overall, the “Big Four” national banks and regional commercial banks signal higher profit efficiency during the post-Basel II era.

Keywords: Cost efficiency; profit efficiency; banking efficiency; stochastic frontier (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1142/S0219091521500107

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