Abstract
Based on the panel data of 40 Commercial Banks in China during 2006-2014, this paper makes an empirical study on the relationship between shadow banking, interest rate marketization and bank risk-taking by using the system GMM model. The study found that the development of the shadow banking and the interest rate marketization is conducive to the diversification of banks’ business, thereby reducing the risk of banks. The study also found that “too big to fail” and periodic are the characteristics of commercial bank risk.
Highlights
Interest rate marketization has always been the core of financial liberalization, is necessary for China’s financial reform
Explanatory Variables 1) Shadow banking business Following the research of Zhu et al (2016), this paper will use the ratio of Redemptory Monetary Capital for Sale as the indicator of the size of commercial banks’ engagement in shadow banking
Using the data of 40 commercial banks in the year of 2005-2015and the method of GMM, this paper studied in the impact of the development of shadow-banking and interest rate liberalization on the bank’s risk-taking
Summary
Interest rate marketization has always been the core of financial liberalization, is necessary for China’s financial reform. From on, the market-oriented reforms of interest rates began in China. Since the acceleration of the market-oriented interest rate reform and the regulation on traditional credit business, the Chinese commercial banks start their own shadow banking business. J. Luo 28 contradiction between the commercial banks’ lending demand and the supervision of regulator, banks with higher risk appetite started to make loans to economic entities through shadow banking business. According to the annual reports of some banks and news, the ultimate demanders of shadow banking capital are mainly the Local Government Funding Vehicle, infrastructure projects and real estate developers who lack of financing capacity. Facing to the rapid development of the shadow banking business, Chinese regulators have issued a series of supervision, for example, No 127 [2014] Document of the China Banking Regulatory Commission stipulates that the financial assets only with high liquidity can be the underlying assets of Redemptory Monetary Capital for Sale, and No 82 [2016] Document of the China Banking Regulatory Commission tightens the regulation of the transfer of non-standard credit assets to off-balance sheet
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