Research In Effects Of Economic Policy Uncertainty On Bank’s Business Behaviors

With the gradual deepening of interest rate liberalization reforms and supply-side structural reforms,the political and economic forms in China and abroad have changed dramatically in recent years.The intensity and difficulty of adjusting the direction of China’s economic development through macroeconomic policies have been continuously strengthened,the economic policies uncertainty has increased accordingly.At the end of 2021,the Central Economic Work Conference clearly pointed out that China is in a new stage of development,and the great changes in the external environment have brought many new problems that need to be re-understood and solved.One of the core issues is "to correctly understand and resolve major risks",and financial risk is the main content of major risk.On the one hand,as the core of China’s financial system,banks are connected to the global economic system and are affected by the political and economic environment in China and abroad.On the other hand,banks are an important link in China’s economic regulation and the most basic way of financing the real economy.They also shoulder important responsibilities for a series of intermediary services such as liquidity,settlement,and guarantee.The stability and efficiency of bank operations play an important role in stabilizing the economy and preventing risks.Economic policy uncertainty is likely to lead to financial risks by affecting banks’ business behavior,which will negatively affect the development of China’s financial system and the orderly operation of the real economy.Therefore,in this period of rising economic policy uncertainty,to prevent and resolve major risks,we should fully understand how the economic policy uncertainty will affect the behavior of banks.Based on the background of increasingly economic policy uncertainty caused by the turbulent political and economic environment in China and abroad,this paper focuses on the impact of economic policy uncertainty on the operation behavior of commercial banks in China.From the four main perspectives of banking income structure,risk management,efficiency,and accounting operations,combined with concentration,competition and bank characteristics,to discuss the impact of economic policy uncertainty on the diversification of bank income structure,active and passive risk-taking,profit efficiency,and the impact of earnings management.This paper mainly uses the economic policy uncertainty index calculated by Baker et al.(2016)to analyze the impact of economic policy uncertainty on the business behavior of Chinese listed commercial banks,and uses the economic policy uncertainty index calculated by Huang and Luk(2020)and Davis et al.(2019)to verify the robustness of the empirical results.This paper mainly includes seven chapters.The first chapter is the introduction,which elaborates the research background,research problems,research significance and research methods of this paper,and points out the innovation and deficiency of this paper.The chapter 2 is literature review,which sorts out the main research results of related literatures on economic policy uncertainty,bank income diversification,risk,efficiency and earnings management,and points out the shortcomings of existing research results.The chapter 3 analyzes the impact of economic policy uncertainty on the diversification of bank income structure,and discuss the impact mechanism.The chapter 4 attempts to explore the impact of economic policy uncertainty on bank risks based on the current requirements of the central government to prevent and resolve major risk issues.This part first divides the three types of bank risks into active risktaking and passive risk-taking according to the willingness of banks to take risks.Through the panel data of China’s listed commercial banks,it discusses how economic policy uncertainty affect different aspects of bank risks.The chapter 5 analyzes the impact of economic policy uncertainty on bank operating behavior from the perspective of bank efficiency,and combines the current trend of China’s bank income structure to diversify,analyzes how economic policy uncertainty affects the bank’s income structure and further influence bank efficiency.We also find the non-linear effect of economic policy uncertainty on commercial bank efficiency.Chapter 6analyzes the impact of economic policy uncertainty on the bank’s earnings management.This part clarifies that economic policy uncertainty will have an impact on the earnings management behavior of commercial banks,and the impact is heterogeneous for different types of banks.Chapter 7 is the conclusion part of this paper.It summarizes the impact of economic policy uncertainty on various aspects of business behaviors of commercial banks in China,puts forward corresponding policy suggestions based on the actual situation in China,and proposes further research directions in the future.For the research on the impact of economic policy uncertainty on the business behavior of commercial banks,this paper mainly draws the following basic conclusions:(1)Economic policy uncertainty will significantly improve the diversification level of China’s commercial banks’ income structure,and the higher the economic policy uncertainty is,the bank’s income structure is more diversified.In addition,with the intensification of bank competition,the impact of economic policy uncertainty on the diversification of bank income structure is more obvious.Further classification of non-interest income can be roughly divided into two parts: net fee and commission income and other non-interest income.It founds that economic policy uncertainty will significantly increase the bank’s other non-interest income,while the impact on fee and commission income is not significant.(2)Economic policy uncertainty will intensify banks’ passive risk-taking represented by bank operating risk(Z value)and credit risk(non-performing loan ratio),but will reduce the active risk taking which represented by risk-weighted asset ratio(risk-weighted asset ratio to total assets).The increase of bank concentration will lead to the increase of bank operating risk and credit risk,but the effect on bank risk-taking is not significant,that is,the impact of economic policy uncertainty and bank concentration on bank risk is heterogeneous.In addition,the degree of concentration will play a role in regulating the impact of economic policy uncertainty on bank risks.As the degree of concentration increases,the uncertainty of economic policy will exacerbate the bank’s operational risk and credit risk,while the impact of risk-taking will be further diminished.(3)The increase of economic policy uncertainty will have a significant negative impact on the profit efficiency of commercial banks in China,and the diversification of bank income structure plays an intermediary role in the relationship between the economic policy uncertainty and bank efficiency,that is,the increase of economic policy uncertainty will increase the diversification of bank income structure to reduce bank efficiency.Introducing the quadratic term of economic policy uncertainty,it founds that economic policy uncertainty has an inverted U-shaped effect on bank efficiency.(4)Economic policy uncertainty will increase the earnings management behavior of commercial banks in China.In the period of rising economic policy uncertainty,banks are more inclined to carry out earnings management,and the degree of this impact is affected by the type of bank,and economic policy uncertainty on non-state-owned banks are more inclined to conduct earnings management than the top five state-owned banks.Further research on the impact mechanism from the perspective of regulatory constraints found that with the increase of capital adequacy ratio and the decline of bank concentration,the degree of positive impact of economic policy uncertainty on earnings management also decreased.Finally,this paper puts forward corresponding suggestions based on the empirical conclusions and plans future research directions.