Summary:
Financial regulatory reform and bank risk prevention consistently attract substantial attention and have become strong protectors of stable national economies and social development. Under these circumstances, a slight change in the loan-to-deposit ratio reform (LDR), as one of China's major financial regulatory reforms, could affect the entire reform program. Since June 2015, both the loan-to-deposit ratio and the non-performing loan (NPL) ratio have been climbing in the banking industry following the State Council's “Amendment to the Commercial Bank Law (Draft),” which formally abolishes the requirement that the loan-to-deposit ratio should not exceed 75%. According to statistics from the China Banking and Insurance Regulatory Commission, the deposit-to-loan ratio of the entire banking industry exceeded 75% as of 2019, while the NPL ratio increased from 1% in 2013 to 1.87% in 2019. Those data challenge the financial regulatory reform, raising the question of whether the regulatory reform conflicts with the goal of “guarding the bottom line of systemic risk”. Accordingly, our innovative focus is the relationship between LDR regulatory reform and bank risk-taking, which is a matter of both theoretical and practical significance. We primarily explore the net effects of LDR regulatory reform on bank risk-taking and the transmission mechanism using micro panel data of 124 Chinese commercial banks from 2013-2018 and a continuous difference-in-differences (DID) and mediating effects model, which uses the regulatory reform as a quasi-natural experiment. Our main conclusions are as follows. First, the LDR regulatory reform reduces bank risk-taking, which implies that regulatory reforms of the deposit-to-loan ratio are consistent with the goal of “preventing systemic risk”. Second, both the theoretical and practical evidence support our key points. On the one hand, the rising NPL ratio is not caused by the regulatory reform, but by the macroeconomic downturn; on the other hand, the LDR regulatory reform reduces bank risk-taking through the three channels of the risk transfer of deposit competition, the risk transfer of shadow banking business, and the risk absorption of asset returns. Third, based on our heterogeneity analysis, the LDR regulatory reform primarily reduces the risk-taking of non-state-owned banks with assets of more than 200 billion yuan. Fourth,the LDR regulatory reform has a negative effect on bank risk-taking, which shows poor credit risk management capabilities, indicating that there is room for further optimization of regulatory reform according to the moderating effect analyses. Our marginal contributions are as follows. First, we evaluate the net effect of the LDR regulatory reforms on bank risk-taking for the first time and reveal the logic behind it. At the theoretical level, we further analyze the mechanism using the three channels to provide more detailed theoretical support than in the past and, to a certain extent, fill the gap in the literature on the relationship between China's LDR regulatory reforms and bank risk-taking. At the practical level, we provide evidence for the regulatory reform of China's deposit-to-loan ratio. Second,compared to the dichotomous DID, using the continuous DID to assess the policy effect can not only overcome the sample self-selection bias caused by grouping but also accurately characterize the relationship between the two methods given that the regulatory reform is a “one-size-fits-all” policy. We also provide focal suggestions from the perspectives of both regulators and commercial banks.First,regulators should build a dynamic reporting system for business data under the existing liquidity supervision system and establish a scientific evaluation system based on credit risk management capability that avoids a “one-size-fits-all” policy.Second,banks should actively construct a financial technology platform and improve their credit risk management system. Third, banks should optimize their internal risk control framework and establish a liquidity risk management committee to enhance the self-discipline mechanism. Fourth, banks should actively engage in social responsibility and allow their good reputation to play an active role in absorbing medium-and long-term deposits to provide sufficient capital for loans. Fifth, banks should use financial instruments such as asset securitization to transform illiquid medium-and long-term loans into liquid, highly creditworthy bond-type securities in the financial market to improve asset liquidity.
丁宁, 吴晓. 存贷比监管改革与银行风险承担——来自中国商业银行的准自然实验[J]. 金融研究, 2023, 512(2): 96-114.
DING Ning, WU Xiao. Effects of Regulatory Reform on Loan-to-deposit Ratio and Bank Risk-taking: A Quasi-natural Experiment in China's Commercial Banks. Journal of Financial Research, 2023, 512(2): 96-114.
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