The Impact Of Bank’s Microscopic Features On Credit Response To Monetary Policy

The theory of bank lending channel is a typical credit transmission mechanism,which is also the most important way to regulate and control macro economic for China’smonetary authorities. Credit response is the choice or action that the bank makes whenfaced with changes in Money Policy. Most previous studies analyzed the influence ofmonetary policy on the whole society and banking system level, which implies anassumption that the banks are homogeneously. However, there’re obvious polarizationcharacteristics within China’s banking system structure. Different size, profitability, andasset condition of banks do not response similarly to the changes of monetary policy.This requires to distinguish the bank’s own characteristics within the micro level to studythe different influence of monetary policy for different banks.This paper uses the threshold panel-data model and collects the characteristic data ofour current16listed banks between2005-2012, to analyze whether the microscopiccharacteristics of different banks lead to the nonlinear effect of monetary policytransmission. In this paper, the M2growth is used as the proxy variable of monetarypolicy. The amount of total assets which reflects the scale of banks, profit growth whichon behalf of the bank profitability, the ratio of non-performing loan and capital adequacyratio which reflects the safety of bank assets and capital level are used separately as thethreshold variable.Empirical study have found that the size of banks, profitability and non-performingloan ratio leads to obvious threshold effect on monetary policy transmission, while theratio of capital adequacy doesn’t. Among those variables, the threshold value of scale andprofitability just divide the16banks into two groups, the biggest four banks and the other.In these two regimes, behaviors of bank credit react differently to monetary policychange. During the sample period used in this paper, the banks which have larger scale, stronger profitability and lower non-performing loan ratio react more sensitively to thefrequently changing monetary policies from the Chinese government.This paper also put forward policy suggestions and further improvement for thetopic after the explanation of the empirical results.