Prudential regulation and bank performance: Evidence from China

Dongwei He, Yifan Wu, Yifan Wang and Xueyan Xing

Pacific-Basin Finance Journal, 2023, vol. 82, issue C

Abstract: This study examines the effects of prudential regulatory policies on bank performance by analyzing specific prudential regulation policy data for the Chinese banking industry. We construct a series of indicators to measure the effectiveness of prudential regulatory policies. Our empirical findings indicate that the regulatory policies improve banks' profitability and reduce non-performing loan ratios, but they lead to a decrease in banks' liquidity. Furthermore, we demonstrate that the improvement in banks' profitability attributes to the rise in non-interest income. Additionally, our study investigates the existence of banks' regulatory arbitrage and finds that prudential regulatory policies significantly increase the off-balance sheet businesses.

Keywords: Bank regulation; Bank performance; Systematic risk; Off-balance sheet business (search for similar items in EconPapers)
JEL-codes: G01 G18 G21 G28 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:82:y:2023:i:c:s0927538x23002524

DOI: 10.1016/j.pacfin.2023.102181

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