BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
The role of the bank lending channel and impacts of stricter capital requirements on the Chinese banking industry
Abstract: This paper focuses on the role the bank lending channel in
transmission of monetary policy in China. Using unbalanced quarterly panel
data from 2Q2000 to 4Q2011, a one-step GMM estimator is applied to
establish the existence the bank lending channel. The findings suggest
central bank monetary policy asymmetrically affects bank lending behavior.
Small banks are found more sensitive to contractionary monetary policy in
the Chinese context. Well capitalized banks appear to be more likely to
adjust their lending behaviors in response to expansionary monetary policy,
and conversely, undercapitalized banks tend to adjust with the advent of
contractionary monetary policy. The importance of the bank lending channel
declines after China introduced stricter capital regulations in early 2004,
but the effect is still apparent in times of expansionary policy.
Keywords: bank characteristics; capital regulation; bank lending channel; asymmetric effects; (follow links to similar papers)
JEL-Codes: E52; (follow links to similar papers)
42 pages, May 2, 2013
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