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Do the Capital Requirements Affect the Effectiveness of Monetary Policy from the Credit Channel?

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  • Xiaoqiong Diao

Abstract

This paper examines weather the capital requirements affect the effectiveness of monetary policy from the credit channel. According to the penal data of commercial banks listed on the A-share stock market in China from 2007 to 2017, I find that the capital requirements to the commercial banks affect the bank loans through the credit channel of monetary policy transmission, which is more obviously on the smaller banks. I further use issuance of preferred stocks of commercial banks instead of IPO to confirm the results again. Moreover, I compare the two kinds of monetary policy instruments in my results, which document that the price-based monetary policy instruments are more sensitive than the quantitative ones.  Keywords: Credit channel, monetary policy, transmission channel of monetary policy, capital adequacy ratios (CAR), preferred stocks.

Suggested Citation

  • Xiaoqiong Diao, 2020. "Do the Capital Requirements Affect the Effectiveness of Monetary Policy from the Credit Channel?," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 10(5), pages 1-6.
    • Handle: RePEc:spt:apfiba:v:10:y:2020:i:5:f:10_5_6
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    References listed on IDEAS

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