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Supervisory independence and bank risk: Evidence from China

Author

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  • Guo, Pin
  • Zhang, Zhao
  • Ling, Ling
  • Cao, Zhongyu

Abstract

This study explores the causal effect of supervisory independence on bank risk. Exploiting the merger of the China Banking Regulatory Commission (CBRC) and the China Insurance Regulatory Commission (CRIC) in 2018 as a shock to supervisory independence, we find that increased supervisory independence is significantly associated with reduced bank capital risk, credit risk, and liquidity risk. These effects are particularly prominent for unlisted banks, high-risk banks, and banks headquartered in cities with lower economic growth or fiscal deficit. We further find that supervisory independence strengthens banking stability without compromising asset growth, credit provision, profitability, and operational efficiency.

Suggested Citation

  • Guo, Pin & Zhang, Zhao & Ling, Ling & Cao, Zhongyu, 2025. "Supervisory independence and bank risk: Evidence from China," Research in International Business and Finance, Elsevier, vol. 79(C).
    • Handle: RePEc:eee:riibaf:v:79:y:2025:i:c:s027553192500296x
    DOI: 10.1016/j.ribaf.2025.103040
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    Keywords

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    JEL classification:

    • 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
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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