Bank liquidity and the risk-taking channel of monetary policy: An empirical study of the banking system in China.

ABSTRACT: This paper addresses the impact of bank liquidity on risk-taking behaviour of Chinese banks, and provides evidence for a risk-taking channel of monetary policy operating through bank liquidity. By using bank-level panel data from 123 Chinese commercial banks during 2003-2018, it is found that banks facing lower liquidity risk will be encouraged to take more risk. Moreover, loose monetary policy leads to more aggressive risk-taking by reducing the bank liquidity risk, namely a liquidity risk-taking channel of monetary policy. These findings suggest that authorities should give full consideration to the influence of the monetary policy on bank risk-taking through bank liquidity channels.

SUBMITTER: Wang C 

PROVIDER: S-EPMC9794090 | biostudies-literature | 2022

REPOSITORIES: biostudies-literature