Abstract
In this article, we investigate the effect of removing the bank lending rate floor in 2013 on the market for loans in China. Given the backdrop of gradual liberalization of financial markets, we analyze data from 2008 to 2018 to gauge whether the interest rate on securities of different maturities have been materially affected by this act of partial liberalization. We find that this action has affected short-term repo (repurchase agreements) interest rates but not long-term interest rates. There is also evidence that the efficiency of lending markets has improved, but the health of the banking sector overall seems to have deteriorated, with lower capital but higher nonperforming loans.
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