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Macroprudential Policy, Credit Cycle, and Bank Risk-Taking

Author

Listed:
  • Xing Zhang

    () (School of Finance, Renmin University of China, Beijing 100872, China)

  • Fengchao Li

    () (School of Finance, Renmin University of China, Beijing 100872, China)

  • Zhen Li

    () (School of Finance, Renmin University of China, Beijing 100872, China)

  • Yingying Xu

    () (Donlinks School of Economics and Management, University of Science and Technology Beijing, Beijing 100083, China)

Abstract

This paper constructs a theoretical model to analyze the effect of macroprudential policies (MPPs) on bank risk-taking. We collect a data set of 231 commercial banks in China to empirically test whether macroprudential tools, including countercyclical capital buffers, reserve requirements, and caps on loan-to-value, can affect bank risk-taking behaviors by using the dynamic unbalanced panel system generalized method of moment (SYS-GMM). The results provide further evidence on the important role of MPPs in maintaining financial stability, which helps mitigate financial system vulnerabilities. Bank risk-taking will be decreased with the strengthening of macroprudential supervision, which greatly benefits the resilience and the sustainability of bank sector. Moreover, the credit cycle has a magnifying role on MPPs’ effect on bank risk-taking. Reducing risks in bank loans requires a further slowing of credit growth, which is necessary to ensure sustainable growth in a bank system, or more ambitiously, to smooth financial booms and busts. The results survive robustness checks under alternative estimation methods and alternative proxies of bank risk-taking and MPPs.

Suggested Citation

  • Xing Zhang & Fengchao Li & Zhen Li & Yingying Xu, 2018. "Macroprudential Policy, Credit Cycle, and Bank Risk-Taking," Sustainability, MDPI, Open Access Journal, vol. 10(10), pages 1-18, October.
  • Handle: RePEc:gam:jsusta:v:10:y:2018:i:10:p:3620-:d:174708
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    References listed on IDEAS

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    More about this item

    Keywords

    macroprudential policy; credit cycle; bank risk-taking; SYS-GMM;

    JEL classification:

    • Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics
    • Q0 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General
    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
    • Q3 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products

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