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Bank Lending Margins in China and the Effects of the June 2012 Liberalization

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  • Richard C. K. Burdekin

    (Claremont McKenna College, 500 E. Ninth Street, Claremont, California 91711, USA)

  • Ran Tao

    (University of Wisconsin-Whitewater, HH4407, Whitewater, Wisconsin 53190, USA)

Abstract

Financial liberalization in China has begun to allow more flexibility in bank interest rate setting but may threaten bank profit margins. This paper documents the initial response to the June 2012 initiative that, for the first time, allowed Chinese banks to meaningfully depart from the benchmark rates laid down by the People's Bank. We use an event study to assess the initial effects on bank share prices and compare the response of the larger state-owned banks to the smaller commercial banks. We identify significant reactions in both the Shanghai and Hong Kong markets.

Suggested Citation

  • Richard C. K. Burdekin & Ran Tao, 2014. "Bank Lending Margins in China and the Effects of the June 2012 Liberalization," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 5(02), pages 1-19.
    • Handle: RePEc:wsi:jicepx:v:05:y:2014:i:02:n:s1793993314500033
    DOI: 10.1142/S1793993314500033
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    References listed on IDEAS

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    1. Mr. Tarhan Feyzioglu & Mr. Nathan Porter & Elöd Takáts, 2009. "Interest Rate Liberalization in China," IMF Working Papers 2009/171, International Monetary Fund.
    2. Bing Xu & Adrian Van Rixtel & Michiel Van Leuvensteijn, 2013. "Measuring bank competition in China: a comparison of new versus conventional approaches applied to loan markets," BIS Working Papers 422, Bank for International Settlements.
    3. Bell, Stephen & Feng, Hui, 2013. "The Rise of the People's Bank of China: The Politics of Institutional Change," Economics Books, Harvard University Press, number 9780674072497, Spring.
    4. Dong He & Honglin Wang & Xiangrong Yu, 2015. "Interest Rate Determination in China: Past, Present, and Future," International Journal of Central Banking, International Journal of Central Banking, vol. 11(4), pages 255-277, December.
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    Cited by:

    1. Burdekin, Richard C.K. & Weidenmier, Marc D., 2015. "Assessing the impact of the Chinese stimulus package at home and abroad: A damp squib?," China Economic Review, Elsevier, vol. 33(C), pages 137-162.
    2. Xiangyi Zhou & Zheng Pei & Botao Qin, 2021. "Assessing Market Competition in the Chinese Banking Industry Based on a Conjectural Variation Model," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 29(2), pages 73-98, March.

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    More about this item

    Keywords

    China; banks; lending; regulation; E44; E50;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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