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Does monetary policy impact bank risk-taking? An empirical study based on the data of 119 commercial banks in China

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  • Li, Yukun
  • Deng, Mujun
  • Cui, Yuqing
  • Pan, Jing

Abstract

Adopting the GMM estimation method, we examine the impact of monetary policy on bank risk-taking using panel data of 119 commercial banks in China over a complete monetary policy cycle, and explore its existence and asymmetry. The results indicate that a loose monetary policy will increase bank risk-taking, and conversely, a tight monetary policy will decrease it. Furthermore, it clarifies that the incentive effect of loose monetary policy on bank risk-taking is more pronounced than the restrictive impact of tight monetary policy. The conclusion serves as a reminder of the potential financial risks in China that could arise from the resumption of a moderately loose monetary policy by late 2024. Finally, we suggests re-evaluating the credit channel of monetary policy, considering financial stability when assessing its effectiveness, and deepening reform of the financial regulatory system.

Suggested Citation

  • Li, Yukun & Deng, Mujun & Cui, Yuqing & Pan, Jing, 2025. "Does monetary policy impact bank risk-taking? An empirical study based on the data of 119 commercial banks in China," Finance Research Letters, Elsevier, vol. 81(C).
    • Handle: RePEc:eee:finlet:v:81:y:2025:i:c:s1544612325008062
    DOI: 10.1016/j.frl.2025.107547
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