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Bank funding costs during the COVID-19 pandemic: Evidence from China

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  • Gao, Haoyu
  • Li, Jinxuan
  • Wen, Huiyu

Abstract

This paper investigates whether and how the COVID-19 pandemic affects bank funding costs in China. We find a significantly positive relationship between the offering yield spreads of negotiable certificates of deposit and banks' pandemic exposure. The surge in bank funding costs is alleviated by banks' asset quality, financial flexibility, operational resilience, and government support, indicating that pandemic-induced risks are priced in the interbank market. The alternative explanations of monetary policy interventions, investors' flight-to-liquidity effect, bank liquidity hoarding, and banks' mispricing are further excluded. We contribute to the literature on the pandemic effects on financial markets, and bank funding during crises.

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  • Gao, Haoyu & Li, Jinxuan & Wen, Huiyu, 2023. "Bank funding costs during the COVID-19 pandemic: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).
    • Handle: RePEc:eee:pacfin:v:79:y:2023:i:c:s0927538x23000720
    DOI: 10.1016/j.pacfin.2023.102006
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    Cited by:

    1. Popova, Polina, 2024. "COVID‑19, corporate non-performing loans, and corporate lending dynamics: Evidence from Russian regions," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 76, pages 5-28.
    2. Zhou, Wenyu & Zhou, Yujun & Zaremba, Adam & Long, Huaigang, 2024. "Stock market reactions under the shadow of the COVID-19 pandemic: Evidence from China," Journal of Behavioral and Experimental Finance, Elsevier, vol. 42(C).
    3. Polina Popova, 2024. "COVID-19, Corporate Non-performing Loans, and Corporate Lending Dynamics: Evidence from Russian Regions," HSE Working papers WP BRP 93/FE/2024, National Research University Higher School of Economics.
    4. Liu, Qingfu & Shi, Chen & Tse, Yiuman & Wang, Chuanjie, 2023. "The value of communication during pandemics," Pacific-Basin Finance Journal, Elsevier, vol. 82(C).

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    More about this item

    Keywords

    Bank funding costs; Negotiable certificates of deposit; COVID-19 pandemic; Bank risk;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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