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Financial regulation and liquidity risk of small and medium-sized banks

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  • Zhang, Yabin
  • Jianhua, Dai

Abstract

Financial regulation is critical to maintaining market stability and the overall health of the financial system. Using data from Chinese small and medium-sized banks, we find that regulation reduces liquidity risk by lowering nonperforming loan and interbank liability ratios. However, this effect is diminished by higher risk reserves, especially in banks with substantial trading liabilities and asset impairments.

Suggested Citation

  • Zhang, Yabin & Jianhua, Dai, 2025. "Financial regulation and liquidity risk of small and medium-sized banks," Finance Research Letters, Elsevier, vol. 81(C).
    • Handle: RePEc:eee:finlet:v:81:y:2025:i:c:s1544612325007202
    DOI: 10.1016/j.frl.2025.107461
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    1. Ly, Kim Cuong & Pham, Ha, 2025. "The effect of bank regulation and supervision on capital buffer and insolvency risk: Does too-big-to-fail matter?," Finance Research Letters, Elsevier, vol. 86(PG).

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