Macroprudential policy, bank risk and efficiency: some evidence from China

Abstract

This paper examines the impact of macroprudential policy on bank risk by utilizing the panel data of 360 commercial banks in China during the period of 2007–2018. The results demonstrate that overall bank risk decreases in response to tightened macroprudential policy. Furthermore, listed banks and banks with larger size benefit more from macroprudential tightening, and macroprudential policy works more effectively when monetary policy is tightened. Additionally, our findings uncover the mediating role of bank efficiency in the relationship between macroprudential policy and bank risk. We observe that bank efficiency increases when macroprudential policy is tightened, which subsequently contributes to a reduction in bank risk. This impact on bank risk is primarily achieved by mitigating banks’ leverage and enhancing their profitability.