Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/249604 
Year of Publication: 
2021
Series/Report no.: 
BOFIT Discussion Papers No. 15/2021
Publisher: 
Bank of Finland, Bank of Finland Institute for Emerging Economies (BOFIT), Helsinki
Abstract: 
We study the impact of China's 2013 implementation of Basel III on bank risk-taking and its responses to monetary policy shocks using confidential loan-level data from a large Chinese bank. Guided by theory, we use a difference-in-difference identification, exploiting cross-sectional differences in lending behaviors between highrisk and low-risk bank branches before and after the new regulations. We find that, through a risk-weighting channel, changes in regulations significantly reduced bank risktaking, both on average and conditional on monetary policy easing. However, banks reduce risk-taking by increasing lending to ostensibly low-risk state-owned enterprises (SOEs) under government guarantees, despite their low average productivity.
Subjects: 
bank risk-taking
banking regulations
risk-weighting
monetary policy
difference-in-difference
China
JEL: 
E52
G21
G28
Persistent Identifier of the first edition: 
ISBN: 
978-952-323-390-4
Document Type: 
Working Paper

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