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Impact of bank competition on the bank lending channel of monetary transmission: Evidence from China

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  • Yang, Jun
  • Shao, Hanhua

Abstract

This paper examines how competition influences the loan supply reaction of banks to monetary policy through the bank lending channel and test whether this reaction differs in heterogeneous bank types. Based on a sample of Chinese banking micro-data over the period from 2003 to 2014, we find that increased competition in China's banking sector reduces the effectiveness of monetary policy transmission through the bank lending channel, and this impact is strongest for city-commercial banks, highly-liquid and well-capitalized banks. These results shed light on the need for the central bank to monitor the development of competition and market structure to improve the effectiveness of monetary transmission.

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  • 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.
  • Handle: RePEc:eee:reveco:v:43:y:2016:i:c:p:468-481
    DOI: 10.1016/j.iref.2015.12.008
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    Cited by:

    1. Inka Yusgiantoro & Wahyoe Soedarmono & Amine Tarazi, 2017. "Bank consolidation and financial stability revisited: Evidence from Indonesia," Working Papers hal-01577970, HAL.

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    Keywords

    Bank competition; Lerner index; Bank lending channel; Monetary policy transmission; China;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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