Monetary Policy Instruments and Bank Risks in China

Abstract

The authors use a panel data regression model to examine the effects of main monetary policy instruments on commercial bank risks in China from 1998 to 2011. The interest rate has a positive effect on bank risk while the interest rate margin, the reserve requirement ratio and open market operation have a negative effect. Among the three monetary policy instruments, the reserve requirement ratio has the greatest effect on bank risk, the interest rate (the interest rate margin) the second largest and the open market operation the weakest. Their findings provide guidance to the monetary authority and regulatory authorities in monetary policy and banking regulation in China.

A new market risk management approach for commercial banks' fixed‐income securities trading accounts

“…Wu and Zhao (2012) investigated the association between the 2008 financial crisis and the conventional liquidity risk management with real data from Washington Mutual and proposed a systemic decision‐making approach for liquidity risk management. Geng and Zhai (2013) used a panel data regression model to examine the effects of mainstream monetary policy instruments on commercial bank risks in China from 1998 to 2011. Mikica Drenovak, Rankovic, Ivanovic, Urosevic, and Jelic (2017) investigated the consequences for banks' risk exposure at the expense of reduced cardinality of Pareto‐optimal portfolios and proposed a novel method of Mean‐Capital Requirement portfolio optimization.…”