Special Financial Account, Local Financial Institutions Loan Behaviours and Operational Efficiency
Huang Wei, Zhang Haiyang, Li Hai
School of Insurance and Economics, University of International Business and Economics; School of Banking and Finance, University of International Business and Economics; School of Political Science and Public Administration, Wuhan University
Abstract:
The existence of Special Financial Account (SFA) not only lowers the efficiency of using fiscal fund, but also makes it possible for local governments to intervene the market economy. Based on the 2005-2008 panel survey data collected by the People's Bank of China, this paper persistently tracks the operation status of 80 financial instructions in 27 counties located in Shanxi, Jilin and Jiangsu province. We found the evidence that local government can significantly affect the loan behavior of financial institutions by using SFA deposit. The more SFA deposit, the more loans from local financial institutions will be influenced. Such implied financial intervention by local government will cause a lower operational efficiency for local financial institutions. Furthermore, this intervention will cause more damage to branches of state-owned banks than to those Rural Credit Cooperatives (RCCs). As a policy implication, it should be an effective way to force local governments obeying market rule by the liquidation of SFAs.
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