Empirical Study Of Monetary Policy And Banks’ Risk-taking Behavior In China

Stability in banking attracted extensive attention of industry analysts and financial regulators after the financial crisis. Some scholars conclude that long-term quantitative easing policy generated bubbles in property and excessive credit expansion caused high risk in financial system, which finally lead to financial crisis. Bank risk management often focuses on the operational risk control of micro level while overlook monetary policy’s risk shock of macro level. However, the underlying problem lies in lack of bank’s risk management. The traditional bank management usually puts a high priority on the banks microscopic monitoring indicators while ignores the channel that monetary policy’s effects on bank’s risk level through the macro-environment.From the existed literatures about transmission channel of monetary policy at home and abroad, much attention was paid to the impact of transmission mechanism consists of interest rate, credit and asset value rather than banking risk-taking behavior. From a new angle, Bank risk-taking channel of monetary policy analyzes the bank risk-taking behavior, the theory focuses on monetary policy’s impact on bank risk identification, risk appetite and risk bearing level, which further lead to the modification of risky portfolio and credit quality and the improvement of the risk degree of bank. This article will focus on whether monetary policy has an impact on bank’s risk condition from the aspects of theoretical and empirical level, and then further analyses the risk transmission mechanism of monetary policy.The paper is divided into six parts, intending to demonstrate the effects of monetary policy on bank risk-taking behavior; part one introduces the background information and the research significance of this paper and shows the research methods and overall train of thought. Part two is review on the past concerning papers and makes the appropriate interpretation about Bank Risk-taking Channel at home and abroad. Part three is part of the empirical analysis, selecting related variables by sample statistics. Part four is using a dynamic panel data by means of GMM and impulse response analysis to test monetary transmission mechanism by adopting the macroeconomic data from2001to2011while explaining regression result. Part five established the simulation system by the way of system dynamics. The last part is putting forward some policy suggestions.Finally, the main empirical results are:(1) Expansionary monetary policy can raise risk-taking level while tight monetary policy can lower risk-taking level.(2)Great scale banks with adequate capital, low-yielding, high stockholders’equity have higher ability to offset monetary policy. Compared with other commercial banks, state-owned banks have strong risk-taking ability with less sensitive to monetary policy.(3) Healthy real economy, low price level and low level of inter-bank competition can improve ability to combat the monetary policy risk. At the same time, bank risk-taking behavior shows asymmetric information that banks are more sensitive to expansionary monetary policy rather than tight monetary policy. In brief, it’s hard to control bank risk.(4) The ability to combat the monetary policy risk becomes higher after financial crisis, therefore big asset scale and high capital level can withstand risks easily. To avoid the shock of monetary policy to banks’stability, monetary authorities should consider the effect of monetary policy on bank risk-taking, strengthening communication and cooperation with financial regulators, making a combination of conventional monetary policy and macro-prudential measures in order to control the economy and stabilize financial system. Meanwhile, banks should improve risk-management framework, build better capital management model and foster financial stability.