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Efficiency in China’s Banking Sector: A Comparative Analysis of Pre- and Post-Basel II Eras

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  • Sunil Mohanty

    (Brooklyn College of the City University of New York, M. Koppelman School of Business, 2900 Bedford Avenue, Brooklyn, NY 11210, USA)

  • Hong-Jen Lin

    (Brooklyn College of the City University of New York, M. Koppelman School of Business, 2900 Bedford Avenue, Brooklyn, NY 11210, USA)

Abstract

This study investigates the effects of Basel II and Basel III capital adequacy rules and the regulatory framework adopted by Chinese banking regulators on the efficiency of the banking sector in China during the post-Basel II era (2007–2017) and compares the results with that of the pre-Basel II era (1996–2006). The study finds that both cost and profit efficiency of the banking industry have improved significantly from the pre-Basel II era (1996–2006) to the post-Basel II era (2007–2017). Subperiod analyses show that the risk-based capital ratio (Tier 1 capital ratio) is significantly positively associated with profit efficiency during both pre- and post-Basel II eras. Overall, the “Big Four” national banks and regional commercial banks signal higher profit efficiency during the post-Basel II era.

Suggested Citation

  • Sunil Mohanty & Hong-Jen Lin, 2021. "Efficiency in China’s Banking Sector: A Comparative Analysis of Pre- and Post-Basel II Eras," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 24(02), pages 1-29, June.
    • Handle: RePEc:wsi:rpbfmp:v:24:y:2021:i:02:n:s0219091521500107
    DOI: 10.1142/S0219091521500107
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    References listed on IDEAS

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    1. Mohanty, Sunil K. & Lin, Winston T. & Lin, Hong-Jen, 2013. "Measuring cost efficiency in presence of heteroskedasticity: The case of the banking industry in Taiwan," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 26(C), pages 77-90.
    2. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 2006. "Bank supervision and corruption in lending," Journal of Monetary Economics, Elsevier, vol. 53(8), pages 2131-2163, November.
    3. Caprio, Gerard (ed.), 2012. "The Evidence and Impact of Financial Globalization," Elsevier Monographs, Elsevier, edition 1, number 9780123978745.
    4. Kevin C. Murdock & Thomas F. Hellmann & Joseph E. Stiglitz, 2000. "Liberalization, Moral Hazard in Banking, and Prudential Regulation: Are Capital Requirements Enough?," American Economic Review, American Economic Association, vol. 90(1), pages 147-165, March.
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    Cited by:

    1. Zhang, Tidong & Cao, Jingsheng, 2023. "Impact of regulatory policy adjustments on insurance company costs and cost efficiency," Finance Research Letters, Elsevier, vol. 58(PD).

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