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Does interest rate liberalization promote the credit behavior of commercial banks: From the perspectives of capital regulation and business innovation

Author

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  • Chen, Mo
  • Wei, Xiaosha

Abstract

This paper employs the system GMM method to examine the relationship between interest rate liberalization and the credit behavior of commercial banks from the dual perspectives of capital regulation and business innovation. The empirical results indicate that interest rate liberalization has a significantly positive impact on the credit behavior of commercial banks. Mechanism tests reveal that interest rate liberalization influences credit behavior through the mediating role of business innovation. Furthermore, capital regulation plays a positive moderating role, enhancing the positive effect of interest rate liberalization on the credit behavior of commercial banks. Heterogeneity tests show differential outcomes based on the level of bank equity concentration and the quality of the legal environment. This study provides empirical evidence for banks to optimize credit strategies and balance capital regulation with business innovation during the process of interest rate liberalization. It offers practical implications for banking institutions in promoting differentiated operations, and achieving stable development.

Suggested Citation

  • Chen, Mo & Wei, Xiaosha, 2026. "Does interest rate liberalization promote the credit behavior of commercial banks: From the perspectives of capital regulation and business innovation," Finance Research Letters, Elsevier, vol. 100(C).
    • Handle: RePEc:eee:finlet:v:100:y:2026:i:c:s1544612326004836
    DOI: 10.1016/j.frl.2026.109954
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    Keywords

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    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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