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Prudential regulation and bank performance: Evidence from China

Author

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  • He, Dongwei
  • Wu, Yifan
  • Wang, Yifan
  • Xing, Xueyan

Abstract

This study examines the effects of prudential regulatory policies on bank performance by analyzing specific prudential regulation policy data for the Chinese banking industry. We construct a series of indicators to measure the effectiveness of prudential regulatory policies. Our empirical findings indicate that the regulatory policies improve banks' profitability and reduce non-performing loan ratios, but they lead to a decrease in banks' liquidity. Furthermore, we demonstrate that the improvement in banks' profitability attributes to the rise in non-interest income. Additionally, our study investigates the existence of banks' regulatory arbitrage and finds that prudential regulatory policies significantly increase the off-balance sheet businesses.

Suggested Citation

  • He, Dongwei & Wu, Yifan & Wang, Yifan & Xing, Xueyan, 2023. "Prudential regulation and bank performance: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 82(C).
    • Handle: RePEc:eee:pacfin:v:82:y:2023:i:c:s0927538x23002524
    DOI: 10.1016/j.pacfin.2023.102181
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    More about this item

    Keywords

    Bank regulation; Bank performance; Systematic risk; Off-balance sheet business;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • 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
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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