Market Efficiency, Credit Supply, and the Real Economy: Empirical Evidence

Abstract

I study how improved equity market efficiency affect banks' credit supply, an indicator of bank risk taking. The reform of non-tradable shares restriction enhance stock market efficiency and better control the bank's risk, and different policy environments will affect the effectiveness of the implementation of the New Deal. Based on the annual data of commercial banks, this paper empirically examines the impact of reform of non-tradable shares on bank risk and examines whether different policy instruments will change the impact of this variable on bank risk. The conclusions show that the reform significantly reduces the level of bank risk exposure, i.e. less credit supply. Second, the release of the reform of non-tradable shares new policy has strengthened the suppression of bank risk by the net stable capital ratio. Therefore, the supervisory authority should consider the policy. The impact of the reform strengthens the coordination between the two and makes it better to play a role in preventing risks.