Bank risk-taking and monetary policy transmission: Evidence from China

Xiaoming Li, Zheng Liu, Yuchao Peng and Zhiwei Xu ()

No 15/2021, BOFIT Discussion Papers from Bank of Finland Institute for Emerging Economies (BOFIT)

Abstract: We study the impact of China's 2013 implementation of Basel III on bank risk-taking and its responses to monetary policy shocks using confidential loan-level data from a large Chinese bank. Guided by theory, we use a difference-in-difference identification, exploiting cross-sectional differences in lending behaviors between highrisk and low-risk bank branches before and after the new regulations. We find that, through a risk-weighting channel, changes in regulations significantly reduced bank risktaking, both on average and conditional on monetary policy easing. However, banks reduce risk-taking by increasing lending to ostensibly low-risk state-owned enterprises (SOEs) under government guarantees, despite their low average productivity.

Keywords: bank risk-taking; banking regulations; risk-weighting; monetary policy; difference-in-difference; China (search for similar items in EconPapers)
JEL-codes: E52 G21 G28 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-cna, nep-mon and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Working Paper: Bank Risk-Taking and Monetary Policy Transmission: Evidence from China (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bofitp:bdp2021_015

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