Financial regulation and liquidity risk of small and medium-sized banks

Yabin Zhang and Dai Jianhua

Finance Research Letters, 2025, vol. 81, issue C

Abstract: Financial regulation is critical to maintaining market stability and the overall health of the financial system. Using data from Chinese small and medium-sized banks, we find that regulation reduces liquidity risk by lowering nonperforming loan and interbank liability ratios. However, this effect is diminished by higher risk reserves, especially in banks with substantial trading liabilities and asset impairments.

Keywords: Financial regulation; Small and medium-sized banks; Liquidity risk; General risk reserve (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:81:y:2025:i:c:s1544612325007202

DOI: 10.1016/j.frl.2025.107461

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