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The impact of excess reserves beyond precautionary levels on Bank Lending Channels in China

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Listed author(s):
  • Nguyen, Vu Hong Thai
  • Boateng, Agyenim

Abstract

This study examines the bank lending channel and the impact of bank-specific characteristics on credit supply in response to monetary policy changes in respect of involuntary excess reserves in China. Using a sample of 95 banks, this study finds that the interaction of involuntary excess reserves with bank liquidity and with large bank size is more vulnerable to monetary policy shocks, while capitalisation has an insignificant impact on credit supply in response to monetary policy changes. Our results indicate that involuntary excess reserves, the size of the bank and liquidity are important in assessing the effect of monetary policy on loan growth. This implies that an agency problem, such as volume-based compensation, appears to drive bank lending and risk-taking behaviour in China.

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Article provided by Elsevier in its journal Journal of International Financial Markets, Institutions and Money.

Volume (Year): 26 (2013)
Issue (Month): C ()
Pages: 358-377

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Handle: RePEc:eee:intfin:v:26:y:2013:i:c:p:358-377
DOI: 10.1016/j.intfin.2013.07.002
Contact details of provider: Web page: http://www.elsevier.com/locate/intfin

Keywords: Excess reserve; Risk taking; Monetary policy; Chinese banks;

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Cited by:

  1. Yang, Jun & Shao, Hanhua, 2016. "Impact of bank competition on the bank lending channel of monetary transmission: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 43(C), pages 468-481.
  2. Nguyen, Vu Hong Thai & Boateng, Agyenim, 2015. "Bank excess reserves in emerging economies: A critical review and research agenda," International Review of Financial Analysis, Elsevier, vol. 39(C), pages 158-166.
  3. Nguyen, Vu Hong Thai & Boateng, Agyenim, 2015. "An analysis of involuntary excess reserves, monetary policy and risk-taking behaviour of Chinese Banks," International Review of Financial Analysis, Elsevier, vol. 37(C), pages 63-72.
  4. Ryan-Collins, Josh & Werner, Richard A. & Castle, Jennifer, 2016. "A half-century diversion of monetary policy? An empirical horse-race to identify the UK variable most likely to deliver the desired nominal GDP growth rate," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 43(C), pages 158-176.

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