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Bank liquidity and the risk-taking channel of monetary policy: An empirical study of the banking system in China

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  • Cong Wang
  • Lihuan Zhuang

Abstract

This paper addresses the impact of bank liquidity on risk-taking behaviour of Chinese banks, and provides evidence for a risk-taking channel of monetary policy operating through bank liquidity. By using bank-level panel data from 123 Chinese commercial banks during 2003–2018, it is found that banks facing lower liquidity risk will be encouraged to take more risk. Moreover, loose monetary policy leads to more aggressive risk-taking by reducing the bank liquidity risk, namely a liquidity risk-taking channel of monetary policy. These findings suggest that authorities should give full consideration to the influence of the monetary policy on bank risk-taking through bank liquidity channels.

Suggested Citation

  • Cong Wang & Lihuan Zhuang, 2022. "Bank liquidity and the risk-taking channel of monetary policy: An empirical study of the banking system in China," PLOS ONE, Public Library of Science, vol. 17(12), pages 1-15, December.
    • Handle: RePEc:plo:pone00:0279506
    DOI: 10.1371/journal.pone.0279506
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    References listed on IDEAS

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