An analysis of involuntary excess reserves, monetary policy and risk-taking behaviour of Chinese Banks

Thai Nguyen and Agyenim Boateng

International Review of Financial Analysis, 2015, vol. 37, issue C, 63-72

Abstract: In this paper, we examine the effects of monetary policy on the risk-taking behaviour of Chinese banks in the presence of involuntary excess reserves based on a sample of 95 banks. We find that involuntary excess reserves lead to more aggressive risk-taking suggesting that large involuntary excess reserves stimulate the rapid expansion of credit and the price bubble in the Chinese financial market. However, banks with larger involuntary excess reserves tend to reduce risk-taking more rapidly under the tightening monetary policy regime. The paper sheds light on the effectiveness of government monetary policy in reducing the risk-taking behaviour of banks in an emerging market where involuntary excess reserves are present.

Keywords: Involuntary excess reserve; Risk-taking; Banks; Monetary policy; China (search for similar items in EconPapers)
JEL-codes: E52 E58 G21 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (18)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:37:y:2015:i:c:p:63-72

DOI: 10.1016/j.irfa.2014.11.013

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