Study On Monetary Policy Stance And Bank Risk-taking

The financial crisis originated in the United States, prompts the central bank toloosen monetary policy to prevent economic recession, which plays a role in causingfinancial instability currency over. But it did not cause the attention of policy makers.The reason is that in this period of economic growth in each country regarded as atarget. While financial innovation in recent years due to some extent spreads the riskof the financial system. Many countries will resolve the risk of financial innovation asa tool. But the global financial crisis blowing from the United States to destroyspeople’s traditional views on easing monetary policy. Most American scholars believethat the long-term expansionary monetary policy led to the expansion of the creditscale, and the financial crisis occurred in this case. Low interest rates caused byexpansionary monetary policy, leads to asset price bubbles. Through a variety ofeffector mechanisms, banks and other financial institutions will increase risk. The riskaccumulates over time shift from the risk of individual financial institutions for theaccumulation of risk across the financial system. To study this conjecture, theexistences of scholars from both theoretical and empirical aspects have madeunremitting efforts.In the global financial crisis, China isn’t well. It is necessary study the influenceof China’s monetary policy on the risk appetite of the banking system. This articlestudy the impact of monetary policy willingness to assume the risk of bank, and useempirical data to study the monetary policy impact on the banking risk, thus knowsthe impact of monetary policy on financial stability degree of.In section1, we will introduce this study’s background and its significance.When we look back through history, the People’s Bank of China mainly adjusted thedeposit reserve ratio to regulate bank loans in order to regulate economic growth.Subprime mortgage crisis, originating in the USA, however, has raise awareness: thetraditional theory, which just focused on monetary policy transmission channel of theamount of bank credit, doesn’t adequately explain the deep-seated causes of this crisis;we need a new theory. At this time, many scholars proposed bank risk-taking transmission channel when monetary policy changed.In section2, I discuss the theory of risk-taking channel and the mechanism bywhich monetary policy affects banks risk-taking. The traditional transmissionchannels of monetary policy are divided into two parts: monetary channel and creditchannel. And I expound each of the two parts and point out the relationship and thedifference between them. The risk-taking channel focus on the credit quality but thetraditional credit channel focus on amount. I also propose four kinds of conductionmechanisms: Money Illusion Effect, Revenue Viscous Effects, Investment InertiaEffect and Communication Efficiency of the Central Bank. I expound each of the foureffects.We proceed in section3to describe the key variables we choose, the date we usein our analysis, the estimating equation and the estimation results. The results suggestthat China’s monetary policy has a significant impact on bank risk-taking. Takentogether, the results provide strong evidence supporting the four ways to influence thebank risk-taking.Finally, we conclude in section4and propose several suggestions helpful toChina’s monetary policy and financial stability.