An analysis of involuntary excess reserves, monetary policy and risk-taking behaviour of Chinese banks

Vu Hong Thai Nguyen, Agyenim Boateng*

*Corresponding author for this work

    Research output: Contribution to journalArticle

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    Abstract

    In this paper, we examine the effects of monetary policy on the risk-taking behaviour of Chinese banks in the presence of involuntary excess reserves based on a sample of 95 banks. We find that involuntary excess reserves lead to more aggressive risk-taking suggesting that large involuntary excess reserves stimulate the rapid expansion of credit and the price bubble in the Chinese financial market. However, banks with larger involuntary excess reserves tend to reduce risk-taking more rapidly under the tightening monetary policy regime. The paper sheds light on the effectiveness of government monetary policy in reducing the risk-taking behaviour of banks in an emerging market where involuntary excess reserves are present.
    Original languageEnglish
    Pages (from-to)63-72
    Number of pages10
    JournalInternational Review of Financial Analysis
    Volume37
    Early online date27 Nov 2014
    DOIs
    Publication statusPublished - Jan 2015

    Keywords

    • monetary policy
    • Chinese banks
    • excess reserves
    • risk

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