Research On The Effectiveness Of Macroprudential Policy Instruments In Preventing Systemic Risk In China

To prevent financial system from over-prosperity or over-depression and maintain financial stability at the same time,the regulatory authorities of numerous countries gradually have introduced the macroprudential regulatory framework after the global financial crisis.In recent years,China has also paid more and more attention to the improvement of macroprudential policy framework.On the one hand,the "dynamic adjustment of the differentiated reserve requirement" was upgraded to the "Macro Prudential Assessment" by the People's Bank of China in 2016.On the other hand,the macroprudential policies for cross-border capital flows and the real estate market are constantly being improved.In this context,in order to provide some references for the implementation of macroprudential policy framework in China,this paper investigates the effectiveness of policy instruments currently in use.Based on annual data of 207 banks from 2011 to 2017,the paper conducts empirical analysis through dynamic panel regression model and system generalized method of moments(GMM).The paper studies the effects of capital adequacy ratio,dynamic provisioning requirement,reserve requirement ratio,liquidity ratio and caps on loan-to-value ratio in reducing systemic risk,where the proxies for risks are increases in bank loans,broad credit,house prices and their procyclicality.In addition,the effectiveness of macroprudential policy instruments in sub-samples is also studied.Therefore,this paper provides a comprehensive analysis to investigate whether macroprudential policy instruments are effective in restraining systemic financial risk in China.The results of empirical analysis show that the effects of macroprudential policy tools in containing systemic risk are different,but the instruments are effective in most cases.Specifically,loan provision rate can effectively restrain the increases of bank loans and its procyclicality.Provision coverage can effectively restrain the increases of bank loans and house prices,as well as their procyclicality.Reserve requirement ratio is the most effective macroprudential policy instrument.The liquidity ratio can effectively contain the growth and procyclicality of both bank loans and broad credit.Capital adequacy ratio and caps on loan-to-value ratio are only effective in reducing the growth and pro-cyclicality of broad credit.Furthermore,most macroprudential policy instruments are more effective for the sub-sample of banks in the east region and small-and medium-sized banks.Finally,the paper puts forward some suggestions to promote the effective implementation of macroprudential policy in China.