Macroprudential Policy, Credit Cycle, and Bank Risk-Taking
AbstractThis 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
Share & Cite This Article
Zhang, X.; Li, F.; Li, Z.; Xu, Y. Macroprudential Policy, Credit Cycle, and Bank Risk-Taking. Sustainability 2018, 10, 3620.
Zhang X, Li F, Li Z, Xu Y. Macroprudential Policy, Credit Cycle, and Bank Risk-Taking. Sustainability. 2018; 10(10):3620.Chicago/Turabian Style
Zhang, Xing; Li, Fengchao; Li, Zhen; Xu, Yingying. 2018. "Macroprudential Policy, Credit Cycle, and Bank Risk-Taking." Sustainability 10, no. 10: 3620.
Note that from the first issue of 2016, MDPI journals use article numbers instead of page numbers. See further details here.