Abstract
Given ongoing financial disintermediation and the need for central banks to establish interest rate corridors, commercial banks have increasingly enriched their asset allocation choices, forming an allocation pattern that combines traditional credit assets (loans) and financial assets (interbank and securities investment). Due to the long-standing dual interest rate system in China, the yields of credit assets and financial assets have differed, which means the latter has greater volatility. Using the quarterly panel data of 23 listed commercial banks in China from 2002 to 2017, the empirical results of this paper show that the fluctuation of the return rate of the two types of assets will affect the asset allocation of banks. Specifically, on the one hand, when the price of financial assets falls, which leads to the narrowing of the credit spread between the two types of assets, banks reduce transaction demand to prevent loss and reduce their holdings of financial assets, thus increasing the ratio of their credit assets to financial assets. On the other hand, rising benchmark lending rates leads to the increase in the credit financing cost of demanders, reducing the willingness of demanders to lend, forcing the demander to obtain funds through other channels. This results in the decrease in the ratio of credit assets to financial assets. Furthermore, the financial characteristics of banks also influence the dynamic adjustment range of asset allocation. That is, the lower the reserve ratio and capital adequacy ratio, the smaller the impact of financial asset yield volatility on bank asset allocation.
Highlights
The financial credit assets, which are known as loans, and financial assets, which encompass securities investment self-regulation mechanisms prevented the loan benchmark interest rate from varying flexibly with the and inter-bank assets
Different from the existing literature, the innovation of this paper lies in the following points: First, according to the characteristics of the asset return rate, bank assets are divided into credit assets and
The long-term coefficient of R7dRepo was significantly positive in the mean group (MG) and pooled mean group (PMG) estimators, indicating that the yield of financial assets was higher, which denotes that when the price drops, the bank’s trading demand will dominate amongst all its demands
Summary
With the development of various financial products and the expansion of financial market participants, the depth and breadth of the market are constantly increasing. Securities and other financial assets have become the most important asset allocation for commercial banks except loans. The proportion of securities assets and inter-bank assets has been stable at the loan interest rate was directly controlled by the regulatory authorities. The financial credit assets, which are known as loans, and financial assets, which encompass securities investment self-regulation mechanisms prevented the loan benchmark interest rate from varying flexibly with the and inter-bank assets. 2 traded below in shows the quarterly curve of credit and financial assets by banks can beFigure publicly the secondary market.yield. Both the interbank bond market represent the rate of return on credit assets, and the seven-day. Performing asset allocation? (2) What kind of dynamic adjustments do commercial banks make when
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
