Bank Sentiment,Credit Supply,and Business Cycle

After the global financial crisis in 2008,the management of market sentiment and expectation has become an important link in preventing systemic financial risks and promoting economic recovery.In recent years,the reform of China's financial system has been constantly pushed forward,and the financial market has achieved diversified development.However,indirect financing is still the main source of funds for China's real economy.With the deepening of interest rate marketization reform in China,the ways and tools of bank financial creation are becoming more and more complex,and the scale of credit supply expands rapidly,which provides room for bank sentiment to impact the credit system and economic stability.Therefore,to strengthen the monitoring and guidance of bank sentiment and guard against the negative impact caused by banks' limited rationality can not only effectively curb the large-scale risk accumulation and exposure of the banking sector,reduce the negative external spillover of systemic financial risk to real economy,but also help achieve the bank's credit funds effectively serve the real economy.Based on the review of the measurement methods,influencing factors and the mechanism of bank sentiment driving credit supply and business cycle,this dissertation constructs the theoretical dynamic model of bank sentiment impacting the macro economy through the credit supply channel,and then synthesizes the bank sentiment index of China.Using the index,this dissertation examines the formation mechanism of bank sentiment,and conducts empirical test on the credit supply transmission mechanism of bank sentiment affecting business cycle.Finally,based on the conclusions of the study,specific policy recommendations are proposed to strengthen bank sentiment monitoring to prevent and resolve the negative effects of bank sentiment fluctuations.Firstly,this dissertation constructs a credit supply transmission mechanism model of bank sentiment influencing business cycle within a country.This dissertation simulates and analyzes the dynamic process of bank sentiment adjusting credit decision under the effect of herd behavior,which leads to credit supply fluctuation and economic output instability.Secondly,this dissertation constructs the bank sentiment index of China based on the results of the bankers' questionnaire by PCA method,and analyzes the characteristics of the index's periodic fluctuation and regional system conversion.Subsequently,the index was used to analyze the formation mechanism of Chinese bank sentiment,and the multiple linear regression method and the mixed frequency Granger causality test were used to test the impact of monetary policy,economic prosperity and economic policy uncertainty on bank sentiment.Third,this dissertation uses dynamic-static synchronism method,cross-spectral analysis method,counterfactual structure vector autoregressive model and threshold vector autoregression model to test the theoretical mechanism of credit supply conduction mechanism of bank sentiment influencing business cycle from three aspects: Bank sentiment influencing credit supply fluctuation,credit intermediary conduction mechanism and volatility conduction mechanism under bank sentiment heterogeneity.This dissertation comprehensively and deeply analyzes the formation of bank sentiment and its influence on credit supply and economic stability,and provides empirical support for strengthening bank sentiment supervision,preventing the risk of bank sentiment fluctuations,improving the effectiveness of monetary policy and enriching macro-prudential management tools.The results show that:(1)Within a country's economic system,bank sentiment and bank credit decision-making process follow herd behavior,which will cause and enlarge the contraction and expansion of credit supply,and is an important source of economic instability.The existence of economic policy uncertainty will lead to further amplification of the above volatility transmission mechanism.(2)the index in this dissertation has obvious characteristics of regional system transformation,which is consistent with the essential characteristics of the transformation of optimism and pessimism.The index is an appropriate proxy for the sentiment of Chinese banks.(3)Economic prosperity and changes in monetary policy are the basic information sources for forming rational judgment of bank sentiment.Subjective psychological factors of banks process the above information under the action of economic policy uncertainty,and finally form bounded rational bank sentiment.In particular,the level of economic prosperity can have a positive impact on bank sentiment.Quantitative monetary policy changes have a counter-cyclical effect on bank sentiment,but there is a long lag in the effect of quantitative monetary policy,the effect of price-based monetary policy on bank sentiment is more obvious and rapid.And bank sentiment is not just a simple “transmitter” of changes in monetary policy,different bank sentiment state may have the disturbance to the monetary policy transmission channel.The economic policy uncertainty and the bank sentiment have the reverse fluctuation relations,and the gloomier the banks,the more sensitive they are to uncertainty about economic policy.(4)The fluctuation of bank sentiment is obviously ahead of credit cycle fluctuation on and off the balance sheet,which is its prospective index.Under the circumstances of strict supervision and counter-cyclical control,banks mainly perform the functions of supervising credit supply and liquidity creation within the scope of their on-balance sheet business.In the off-balance sheet business,bank sentiment is more fully converted into credit decisions based on their own wishes and expectations,thereby triggering credit fluctuations outside the supervision.In addition,bank sentiment changes will affect bank credit decision-making behavior in the short term,while the long-term change of bank sentiment is also guided and restrained by the credit supervision indicators.(5)Bank sentiment can have a significant impact on the macro economy through the Shadow banking lending channel,and the impact of bank sentiment on on-balance sheet credit has not been significantly transmitted to the macro economy.Bank sentiment has room for release in areas of weak regulation,so its existence cannot be ignored.Poorly regulated credit volatility has a natural procyclicality and has become an important source of risk in the financial system,driven by bank sentiment.(6)The effect of bank sentiment on economic fluctuation is obviously asymmetric.Compared with the state of optimistic,pessimistic bank sentiment restrains the effect of actual shock and magnifies the effect of credit on macro-economy.Compared with the rational state,the shadow banking shock,the actual shock and the bank sentiment shock cause the economic fluctuation bigger and the duration longer.States of bank optimism and pessimism can affect the effect of counter-cyclical policy regulation.In the state of limited rationality,the monetary policy counter-cyclical regulation mechanism was completely broken.Based on bank sentiment data of China,this dissertation makes an in-depth analysis of the fluctuation transmission effect of bank sentiment on business cycle mediated by credit supply,and tests the characteristics of the fluctuation transmission under the action of heterogeneous bank sentiment.According to the above conclusions,this dissertation puts forward specific policy suggestions from four aspects: Strengthening Monetary Policy Regulation and forward-looking guidance,strengthening banking system supervision,regulating the behavior of bank employees and further improving the banker investigation system.Multiple measures should be taken to reduce the role of bank sentiment in the fluctuation of credit cycle,control and reduce the negative impact of sentiment,promote the economy to a balanced state,and maintain economic development and financial stability.