U.S. monetary policy uncertainty and active risk-taking by China's commercial banks

The U.S. monetary policy has exhibited a high level of uncertainty since the subprime crisis. Academics have paid close attention to the potential risks it poses overseas, but its spillover effect on financial depression abroad has not received due attention. This study uses a sample covering 267 commercial banks in China from 2007 to 2022, to empirically test the impact of U.S. monetary policy uncertainty on the active risk-taking by China's commercial banks. Our results indicate that U.S. monetary policy uncertainty exerts a significant negative effect on the active risk-taking by China's commercial banks, which is confirmed by a battery of endogeneity tests and robustness analyses. Heterogeneity analysis shows that the depressing effect of U.S. monetary policy uncertainty is predominantly concentrated in eastern-based banks, as well as regional & local banks. These findings lend empirical support to the notion that U.S. monetary policy uncertainty can depress bank risk-taking in another country.