Does bank efficiency affect the bank lending channel in China?

This work examines the impact of bank efficiency on the bank lending channel in China. Using a sample of 175 Chinese banks over the period 2006–2017, we investigate how the reaction of the loan supply to monetary policy actions depends on a bank’s efficiency. While bank efficiency does not exert an impact on the effectiveness of monetary policy transmission overall, it does favor the transmission of monetary policy for banks with low loan-to-deposit ratios. In addition, the expansion of shadow banking activities has been associated with a positive impact of bank efficiency on monetary policy transmission. These results suggest that bank efficiency may influence the bank lending channel in certain cases.

Sisällysluettelo

Contents
Abstract ....... 4
1 Introduction ...... 5
2 Monetary policy in China....... 7
3 Data and methodology ....... 10
3.1 Data ........ 10
3.2 Bank efficiency........ 11
3.3 Methodology ....... 12
4 Results ...... 14
4.1 Main estimations........ 14
4.2 Estimations by bank type ....... 15
4.3 Estimations by loan-to-deposit ratio........ 17
4.4 The influence of shadow banking expansion ........ 18
4.5 Alternative efficiency measurement........ 19
5 Conclusion........ 20
References ....... 22
Tables ........ 24

Julkaisuhuomautus

Accepted for publication in Emerging Markets Review