Research On The Impact Of Economic Policy Uncertainty On Commerical Banks’ Risk Taking

Since the sub-prime crisis,the economic development of all countries has been affected to a certain extent and the turbulence in economic development has inevitably led to an increase in its risks.In this context,governments have frequently introduced policies to ensure the smooth running of the economic system.Although this has been effective to a certain extent,it has also directly contributed to the increased uncertainty of economic policies.According to an index published on the Economic Policy Uncertainty website,economic policy uncertainty in China reached a peak in 2020.Increased economic policy uncertainty directly affects the development of the financial system.As a key node linking the real economy and the financial sector,banks are an important transmission channel for various macro interventions.Elevated economic policy uncertainty will lead to changes in the risk-taking level of commercial banks,and in general,elevated economic policy uncertainty will worsen the systemic risk of commercial banks.in December 2022,the China Banking and Insurance Regulatory Commission issued a management approach on country-specific risks,which indicates that China has gradually modernized its risk management for the banking sector.This paper studies the impact between economic policy uncertainty and commercial banks’risk-taking,and classifies banks’ risk-taking levels into active and passive risk-taking levels.From the perspective of competition in the banking industry,this paper uses the data of 93 commercial banks in China from 2011-2021 to establish panel data to explore the impact between economic policy uncertainty and the risk-taking level of commercial banks,and conducts empirical analysis in terms of both active risk-taking level and passive risk-taking level,while taking full account of the different levels of development in the banking industry,and according to their differences,separately At the same time,we take into account the different levels of development of the banking industry and analyze the active and passive risk-taking levels of commercial banks of different quality.According to the results of the study:First,the increase of economic policy uncertainty in China has a dampening effect on banks’ active risk-taking level.Specifically,when economic policy uncertainty rises,bank managers are more cautious in extending credit,leading to a reduction in credit supply and a curtailment of their risk-taking levels.Second,increased economic policy uncertainty in China exacerbates the level of passive risk-taking by banks.Third,elevated economic policy uncertainty has different implications for different types of banks.Specifically,urban banks have the most significant suppression of their active risk-taking levels and the most significant enhancement of their passive risk-taking levels.In this regard,this paper proposes the following policies and recommendations:i.Reduce bank credit risk and develop a diversified business model.Banks should strengthen the training of their business personnel internally to ensure their full understanding of loan business and prevent their risk identification ability from decreasing to the maximum extent.At the same time,commercial banks should create a new diversified business model.Second,ensure the continuity of policies and increase the interpretation of policies.Policy makers and related departments should try to ensure the continuity of the policy,policy introduction to establish a perfect mechanism,from the introduction of pre-publicity interpretation to the introduction of the emergency response,and then to the introduction of the implementation of the evaluation of the effect,a series of complete policy more effectively reduce economic policy uncertainty.Third,the establishment of a precise regulatory mechanism to enhance the risk control system of banks.For economic policy uncertainty index regular testing,set the corresponding indicators.For economic policy uncertainty index regular testing,set the corresponding indicators.Take full account of the different circumstances of the development of China’s commercial banks,set precise regulatory objectives and effectively respond to the impact of economic policy uncertainty.