Research On The Impact Of Monetary Policy On Bank Risk-taking

The outbreak of the US subprime crisis made economists note the relationship between monetary policy and financial stability. As a very important financial factor in financial market, banks’risk-taking behaviors are related with the financial stability of a country. Therefore, after the financial crisis in 2008 some scholars proposed a new monetary policy transmission mechanism - monetary policy bank risk-taking channel. This transmission channel of said that the loose monetary policy could reduce the risk appetite of banks by decreasing the market value of risk-free assets or increasing the value of the borrower’s hostages, and in turn stimulating banks to relax lending standards and expanding the size of loans ultimately which could affect banks’risk level. Deepening of the banking organization structure reform enhances the motivation of profit seeking among banks in China which impacts on the monetary policy channel. And it is important to maintain the financial stability with the increasing liberalized financial market. Therefore, after sorting out the mechanism, this article analyses the monetary policy risk-taking channel in China empirically and provides realistic basis for monetary policy framework and the macro-prudential supervision system in China.Firstly, the paper summarizes the results of previous researches and sorts out the researches on risk-taking channel of bank. And then, this article notes the excessive excess reserves in China and estimates the involuntary excess reserves according to the definition in the previous research. Secondly, this paper puts the involuntary excess reserves into the empirical model. What’s more, this article analyzes existence of the monetary policy bank risk-taking channel based on the micro data of 16 listed banks from 2006-2014 by using the difference GMM method.Through empirical analysis, this article verified the existence of the new monetary policy channel in China. There is a negative correlation between the monetary policy stance and bank risk. Under the accommodative monetary policy, the banks improve their risk appetite and then increase the levels of their risk-taking. Meanwhile, involuntary excess reserves as banks’excess liquidity would induce banks to take more risk.According to the empirical conclusions, this paper proposes that the monetary policy makers should take the banks’ risk-taking behavior into consideration and establish the monitor system for banks’involuntary excess reserves to prevent the financial crisis. Macro-prudential supervision system also should be established to consolidate the financial stability in China.