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Macro-prudential policy, digital transformations and banks’ risk-taking

Author

Listed:
  • Li, Yongkui
  • Du, Qixuan
  • Chao, Xiangrui
  • Gao, Xiang

Abstract

This study examines the influence of macro-prudential policies on risk-taking among systemically important banks using unbalanced panel data from 126 commercial banks in China between 2010 and 2021. Under a difference-in-differences setup, the empirics demonstrate that macro prudence in China effectively enhances large banks’ risk prevention measures and risk-mitigation efforts. Specifically, macro-prudential policy implementation facilitates the digital transformation of banking and subsequently reduces risk-taking behavior. According to heterogeneity test results, the concerned effect becomes more significant for systemically important banks having higher capital adequacy ratios. Moreover, the most important banks with strong interbank dependence exhibit more pronounced changes in risk profiles responding to stricter capital supervision requirements. Our findings shed light on the economic consequences of monitoring strengthening from the perspective of regulatory authorities.

Suggested Citation

  • Li, Yongkui & Du, Qixuan & Chao, Xiangrui & Gao, Xiang, 2024. "Macro-prudential policy, digital transformations and banks’ risk-taking," The Quarterly Review of Economics and Finance, Elsevier, vol. 98(C).
    • Handle: RePEc:eee:quaeco:v:98:y:2024:i:c:s1062976924001479
    DOI: 10.1016/j.qref.2024.101941
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    More about this item

    Keywords

    Macro-prudential policy; banks’ digital transformation; systemically important banks; risk-taking; difference-in-differences model;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • 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
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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