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Bank profitability and the bank lending channel: Evidence from China

  • Gunji, Hiroshi
  • Yuan, Yuan

This paper uses bank-level data to investigate whether the impact of monetary policy on bank lending depends on the characteristics of Chinese banks during the period 1985-2007. We find that the impact of monetary policy on lending is weaker for larger banks and banks with lower levels of liquidity, and that banks' responses to monetary policy do not necessarily vary according to their capital. Further, to identify the bank lending channel more clearly, we test whether the impact of monetary policy varies according to profitability. The results show that profitable banks tend to be less sensitive to monetary policy, because when tight monetary policy leads to a fall in deposits, less profitable banks face a higher cost of capital.

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Article provided by Elsevier in its journal Journal of Asian Economics.

Volume (Year): 21 (2010)
Issue (Month): 2 (April)
Pages: 129-141

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Handle: RePEc:eee:asieco:v:21:y:2010:i:2:p:129-141
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  1. Marvin Goodfriend & Eswar Prasad, 2009. "A Framework for Independent Monetary Policy in China," Chapters, in: Monetary Policy Frameworks for Emerging Markets, chapter 8 Edward Elgar.
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  7. Lin, Xiaochi & Zhang, Yi, 2009. "Bank ownership reform and bank performance in China," Journal of Banking & Finance, Elsevier, vol. 33(1), pages 20-29, January.
  8. Kashyap, Anil K. & Stein, Jeremy C., 1995. "The impact of monetary policy on bank balance sheets," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 42(1), pages 151-195, June.
  9. Jeremy C. Stein & Anil K. Kashyap, 2000. "What Do a Million Observations on Banks Say about the Transmission of Monetary Policy?," American Economic Review, American Economic Association, vol. 90(3), pages 407-428, June.
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  11. Gambacorta, Leonardo, 2005. "Inside the bank lending channel," European Economic Review, Elsevier, vol. 49(7), pages 1737-1759, October.
  12. Qin, Duo & Quising, Pilipinas & He, Xinhua & Liu, Shiguo, 2005. "Modeling monetary transmission and policy in China," Journal of Policy Modeling, Elsevier, vol. 27(2), pages 157-175, March.
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  15. Yuan, Yuan, 2006. "The state of competition of the Chinese banking industry," Journal of Asian Economics, Elsevier, vol. 17(3), pages 519-534, June.
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