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

Vu Hong Thai Nguyen; Agyenim Boateng

doi:10.1016/j.irfa.2014.11.013

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 journal › Article

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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 language	English
Pages (from-to)	63-72
Number of pages	10
Journal	International Review of Financial Analysis
Volume	37
Early online date	27 Nov 2014
DOIs	https://doi.org/10.1016/j.irfa.2014.11.013
Publication status	Published - Jan 2015

Keywords

monetary policy
Chinese banks
excess reserves
risk

Documents and Links

10.1016/j.irfa.2014.11.013

Nguyen, V.H.T., Boateng, A. (2014) An analysis of involuntary excess reserves, monetary policy and risk-taking behaviour of Chinese banks
This is the pre-print version of an article published in International Review of Financial Analysis by Elsevier. Available at http://www.sciencedirect.com/science/article/pii/S1057521914001872 Copyright: © 2014 Elsevier Inc. All rights reserved.
Submitted manuscript, 539 KB

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Nguyen, V. H. T., & Boateng, A. (2015). An analysis of involuntary excess reserves, monetary policy and risk-taking behaviour of Chinese banks. International Review of Financial Analysis, 37, 63-72. https://doi.org/10.1016/j.irfa.2014.11.013

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