How Do Short-Term Cross-Border Capital Flows Affect Bank Risk-Taking? Evidence from China

Rui Chen and Jinye Li

Emerging Markets Finance and Trade, 2024, vol. 60, issue 5, 1064-1076

Abstract: This study examines the impact of short-term cross-border capital flows on banks’ risk-taking using panel quarterly data from all 37 A-share listed commercial banks in China. We demonstrate that short-term cross-border capital flows increase both ex ante and ex post risk-taking by banks. The impact of short-term cross-border capital flows upon banks’ ex ante and ex post risk-taking is heterogeneous across different kinds of commercial banks and at different phases of the financial cycle. Besides, short-term cross-border capital flows exhibit a non-linear effect on banks’ ex ante risk-taking and ex post risk-taking with changes in capital account openness.

Date: 2024
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DOI: 10.1080/1540496X.2023.2267739

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