BOFIT Seminar - Zuzana Fungáčová (BOFIT), Eeva Kerola (BOFIT) and Laurent Weill (University of Strasbourg)

Zuzana Fungáčová (BOFIT), Eeva Kerola (BOFIT) and Laurent Weill (University of Strasbourg) will present their research entitled

Does Bank Efficiency Affect the Bank Lending Channel in China?

Abstract
This work examines the impact of bank efficiency on the bank lending channel in China. We use a sample of almost 200 Chinese banks over the period 2006-2017 to investigate the reaction of loan supply to monetary policy actions depending on the level of bank efficiency. Overall we find that the effect of monetary policy on bank lending is not dependent on bank efficiency. Further investigation however shows that bank efficiency favors the transmission of monetary policy for banks with lower loans to deposits ratio. In addition, the expansion of shadow banking activities over time has been associated with a positive impact of bank efficiency on monetary policy transmission. These results suggest that bank efficiency can have a significant impact on the effectiveness of monetary policy.

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