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Sustainability 2018, 10(10), 3620; https://doi.org/10.3390/su10103620

Macroprudential Policy, Credit Cycle, and Bank Risk-Taking

1
School of Finance, Renmin University of China, Beijing 100872, China
2
Donlinks School of Economics and Management, University of Science and Technology Beijing, Beijing 100083, China
*
Author to whom correspondence should be addressed.
Received: 31 August 2018 / Revised: 2 October 2018 / Accepted: 4 October 2018 / Published: 10 October 2018
(This article belongs to the Special Issue Application of Time Series Analyses in Business)
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Abstract

This paper constructs a theoretical model to analyze the effect of macroprudential policies (MPPs) on bank risk-taking. We collect a data set of 231 commercial banks in China to empirically test whether macroprudential tools, including countercyclical capital buffers, reserve requirements, and caps on loan-to-value, can affect bank risk-taking behaviors by using the dynamic unbalanced panel system generalized method of moment (SYS-GMM). The results provide further evidence on the important role of MPPs in maintaining financial stability, which helps mitigate financial system vulnerabilities. Bank risk-taking will be decreased with the strengthening of macroprudential supervision, which greatly benefits the resilience and the sustainability of bank sector. Moreover, the credit cycle has a magnifying role on MPPs’ effect on bank risk-taking. Reducing risks in bank loans requires a further slowing of credit growth, which is necessary to ensure sustainable growth in a bank system, or more ambitiously, to smooth financial booms and busts. The results survive robustness checks under alternative estimation methods and alternative proxies of bank risk-taking and MPPs. View Full-Text
Keywords: macroprudential policy; credit cycle; bank risk-taking; SYS-GMM macroprudential policy; credit cycle; bank risk-taking; SYS-GMM
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Zhang, X.; Li, F.; Li, Z.; Xu, Y. Macroprudential Policy, Credit Cycle, and Bank Risk-Taking. Sustainability 2018, 10, 3620.

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