Does Bank Efficiency Affect the Bank Lending Channel in China?
38 Pages Posted: 10 Feb 2021 Last revised: 3 Apr 2023
Date Written: February 8, 2021
Abstract
This work examines the impact of bank efficiency on the bank lending channel in China. Using a sample of 175 Chinese banks over the period 2006–2017, we investigate how the reaction of the loan supply to monetary policy actions depends on a bank’s efficiency. While bank efficiency does not exert an impact on the effectiveness of monetary policy transmission overall, it does favor the transmission of monetary policy for banks with low loan-to-deposit ratios. In addition, the expansion of shadow banking activities has been associated with a positive impact of bank efficiency on monetary policy transmission. These results suggest that bank efficiency may influence the bank lending channel in certain cases.
Keywords: Chinese banks, monetary policy, bank efficiency, bank lending channel
JEL Classification: E52, G21
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