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Are banks rewarded for financial consumer protection? Evidence from a quasi-natural experiment

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  • Zhang, Ailian
  • Wang, Shuyao
  • Lien, Donald
  • Yu, Chia-Feng (Jeffrey)

Abstract

We investigate whether banks benefit from financial consumer protection. Exploiting the difference-in-differences approach based on a policy mandated for Chinese banks and entropy balancing matched sample, we document an increase in non-performing loans and a decrease in total income following the implementation of the policy for opaque banks relative to transparent banks. Decomposition exhibits a decrease in interest income and an increase in non-interest income. The effect is more pronounced for banks with higher ex-ante profits. Our results suggest that financial consumer protection benefits opaque banks’ non-traditional business but harms their traditional business, especially for those with larger customer bases.

Suggested Citation

  • Zhang, Ailian & Wang, Shuyao & Lien, Donald & Yu, Chia-Feng (Jeffrey), 2023. "Are banks rewarded for financial consumer protection? Evidence from a quasi-natural experiment," Finance Research Letters, Elsevier, vol. 52(C).
    • Handle: RePEc:eee:finlet:v:52:y:2023:i:c:s1544612322007553
    DOI: 10.1016/j.frl.2022.103579
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    More about this item

    Keywords

    Financial consumer protection; Non-performing loan; Interest and non-interest income; Chinese banks;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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