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The role of the bank lending channel and impacts of stricter capital requirements on the Chinese banking industry

  • Xiong , Qiyue

    ()

    (BOFIT)

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    This paper focuses on the role the bank lending channel in transmission of monetary policy in China. Using unbalanced quarterly panel data from 2Q2000 to 4Q2011, a one-step GMM estimator is applied to establish the existence the bank lending channel. The findings suggest central bank monetary policy asymmetrically affects bank lending behavior. Small banks are found more sensitive to contractionary monetary policy in the Chinese context. Well capitalized banks appear to be more likely to adjust their lending behaviors in response to expansionary monetary policy, and conversely, undercapitalized banks tend to adjust with the advent of contractionary monetary policy. The importance of the bank lending channel declines after China introduced stricter capital regulations in early 2004, but the effect is still apparent in times of expansionary policy.

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    File URL: http://www.suomenpankki.fi/bofit_en/tutkimus/tutkimusjulkaisut/dp/Documents/2013/dp0713.pdf
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    Paper provided by Bank of Finland, Institute for Economies in Transition in its series BOFIT Discussion Papers with number 7/2013.

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    Length: 42 pages
    Date of creation: 02 May 2013
    Date of revision:
    Handle: RePEc:hhs:bofitp:2013_007
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    1. Chetan Dave & Scott J. Dressler & Lei Zhang, 2013. "The Bank Lending Channel: A FAVAR Analysis," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(8), pages 1705-1720, December.
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    7. Altunbas, Yener & Fazylov, Otabek & Molyneux, Philip, 2002. "Evidence on the bank lending channel in Europe," Journal of Banking & Finance, Elsevier, vol. 26(11), pages 2093-2110, November.
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    15. Piti Disyatat, 2010. "The bank lending channel revisited," BIS Working Papers 297, Bank for International Settlements.
    16. Jeremy C. Stein & Anil K. Kashyap, 2000. "What Do a Million Observations on Banks Say about the Transmission of Monetary Policy?," American Economic Review, American Economic Association, vol. 90(3), pages 407-428, June.
    17. Alvaro Aguiar & Ines Drumond, 2007. "Business Cycle and Bank Capital: Monetary Policy Transmission under the Basel Accords," FEP Working Papers 242, Universidade do Porto, Faculdade de Economia do Porto.
    18. Kishan, Ruby P & Opiela, Timothy P, 2000. "Bank Size, Bank Capital, and the Bank Lending Channel," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(1), pages 121-41, February.
    19. Jan Kakes & Jan-Egbert Sturm, 2001. "Monetary policy and bank lending. Evidence from German banking groups," MEB Series (discontinued) 2001-1, Netherlands Central Bank, Monetary and Economic Policy Department.
    20. Dong He & Laurent Pauwels, 2008. "What Prompts the People's Bank of China to Change its Monetary Policy Stance? Evidence from a Discrete Choice Model," Working Papers 0806, Hong Kong Monetary Authority.
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