The Effects Of Macroeconomic Fluctuation On Bank Credit Behavior

Credit cycle is an important source of financial systematic risk in the global scope,further influencing the whole real economy.Mountains of theory research and empirical evidence have verified that bank credit cycle has significant procyclicality effect,that is,bank credit scale will increase if economy booms and will decrease if economy slowdowns.The effect is more significant through mechanism of financial accelerator.Therefore,it has long been a common topic for scholars and regulators to restrain bank credit procyclicality and reduce bank credit risk in order to build inverse periodic mechanism.Influenced by international financial crisis triggered by the U.S.sub-prime mortgage crisis since 2008,China's economy has suffered greatly including decreased exports,sluggish consumption,slowed economic growth,and rising unemployment rate.In order to recover real economy and successfully get through financial crisis,Chinese government implemented the ''four trillion" investment strategy which is anti-economic cycle,leading to a rapid expansion of the credit scale.Then in 2010,commodity prices especially the housing price rose dramatically and inflationary pressure increased sharply.Therefore,it has become a main task to control currency inflation and regulators began to implement a prudent monetary policy in 2011.Chinese Banking Regulatory Commission introduced Methods of Capital Management for Commercial Banks(Trial)in 2012,which deepened the guiding ideology of inverse period risk management.In 2015,the central bank cut interest rate and decreased deposit reserve,trying to expand bank credit scale.Hn 2016,the new regulation of the bank's financial regulation was initiated,and the supervision of the capital has begun to tighten.Further in the national financial meeting in July of 2017,Chairman Xi stressed it should be a core business to prevent the risk in financial industry.According to these actions,people can know that the monetary policy of central bank is always changing and that regulators need to adjust their policies based on economy change in the process of financial system perfection.Therefore,in this complicated situation,it has a stronger time significance and policy test value to study the cycle effect of bank credit and will be an important research topic.Former related to the influence of macroeconomic fluctuation to bank credit basically assumed that banks are homogeneous and ignored the moderating effects of bank heterogeneity on their relationships.However,the financial accelerator theory captures the bank characteristics' influence earlier.According to the role of the financial accelerator theory,bank balance sheet has two asymmetric important feature:the influence of bank balance sheet to firm investment is bigger when economy declines than when economy booms,and this influence is also more significant on small firms than on large companies.Thus,it is not consistent with the theoretical expectations and does not coincide with the actual economic development to ignore the role of the bank heterogeneity in the study of the role of macroeconomic fluctuation to bank credit.Based on our literature review,the direct study of credit cycle effect is fruitful,but it is rare to study bank credit effect from the point of view of bank heterogeneity,and the conclusion is not uniform.So it is very necessary to seek a reasonable answer,which needs more theory and empirical research work.This paper mainly studied the following questions.Initially,how macroeconomic fluctuations affect the credit behavior of micro commercial banks,that is,to explore the cycle effect of bank credit from the micro perspective.Subsequently,this paper further explores the possible moderating effect of bank heterogeneity on bank credit cycle,such as bank size,supervision requirements,and ownership structure.Thirdly,the mechanism by which the bank's core heterogeneity plays a role in credit regulation.In the final part,this paper summarizes and further puts forward some policy suggestions according to the research conclusion.The research content of this paper can be divided into the three parts:The first part mainly introduces the research background,theoretical analysis,and institutional background.The introduction part analyzes research background and innovation related to bank credit cycle effect and summarizes and reviews the related literature.Then this paper analyzes the theory basis and states the institutional background of bank credit business.The second part is the main outcomes of empirical test.From the perspective of social stability function during government intervention,of investment-driven economy,and of bank capital buffer,this paper finds that bank credit has counter cyclical features during macroeconomic fluctuation.It further explores the moderating effect of core bank heterogeneity from three aspects including ownership property,bank size,and bank capital adequacy ratio.In the extension section,this paper also considers the influential channels of the heterogeneity of commercial Banks,including management efficiency,risk control and potential financing ability.The third part focuses on conclusion and policy suggestion,namely that this part summarize the main outcome of empirical test and then propose some countermeasures to improve bank credit cycle.From the perspective of the government role of banks heterogeneity,this paper firstly summarizes the main results of main tests and further studies and then gives some suggestions on bank business,wealth management,prevention of the influence of international economy and financial innovation.This paper gets the following conclusions by studying the influence of macroeconomic fluctuation to bank credit behavior and the moderating effect of bank heterogeneity to the relationship between macroeconomic fluctuation and bank credit behavior:Firstly,bank credit has a significant countercyclical effect.Macroeconomic fluctuations have a significant positive correlation with credit issuance and a significant negative correlation with bank non-performing loan ratio,which is the inverse economic cycle effect.Our big business banks are controlled by the government,which has a political and social stability function,which is consistent with the background of the government's macro-government intervention and are also related to the national culture and economic structure.The countercyclical effect of bank credit growth partly explains the role of countercyclical supervision mechanism.As the non-performing loan ratio is the result of the bank's credit decision,the credit decision based on credit quality is the balance between credit risk control and risk return.When the economy goes up,the non-performing loan ratio decreases,and when the economy goes down,the non-performing loan ratio increases.The stronger the capital strength,the weaker the limit of capital supervision,and the more willing to put credit in the macroeconomic downturn,strengthening the counter-cyclical characteristics of bank credit.Secondly,bank heterogeneity can strengthen the countercyclical effect of commercial bank credit growth.Bank heterogeneity includes equity structure,capital adequacy ratio and asset size.High shareholding of major shareholders can reduce agency costs,improve decision-making efficiency and improve operational efficiency.Government-controlled commercial banks have strong risk resistance and social stability responsibilities by relying on government background,while commercial banks with high capital adequacy ratio and large assets have strong risk resistance and potential financing capacity.In this paper,it is found that banks with large shareholders,high government control,high capital adequacy ratio and large asset size may reduce the credit scale to avoid sharp decline after economic overheating.In the case of a downturn,such banks will expand credit to avoid a reduction in real economy investment caused by the multiplier effect,thus stimulating economic growth and keeping the economy stable.Thirdly,bank heterogeneity can weaken the inhibiting effect of macroeconomic fluctuations on non-performing loans.This paper found that when the macro economic situation is prosperous,Commercial Banks with large shareholders have profit motive,state-controlled commercial Banks have political motive,commercial Banks with high capital adequacy have strong potential financing ability,and commercial Banks with large scale have high risk tolerance.Therefore,such enterprises prefer credit projects with high returns and high risks(such as infrastructure lending projects with higher risks and returns and state-owned enterprise lending projects),causing the bad debt rate rising.When the economic situation is bad,such commercial banks have higher operating efficiency,risk resistance and potential financing capacity,which will reduce the impact of macroeconomic deterioration on banks,improve credit quality and reduce the non-performing loan ratio.Fourthly,bank heterogeneity affects the relationship between macroeconomic fluctuations and credit behavior through management efficiency,risk control and potential financing channels.The stronger the profitability,the more standardized the bank's risk control and credit delivery process,and the stronger the operation and management efficiency.Listed commercial banks represent strong potential financing capacity,effective corporate governance mechanism and decision-making efficiency,and face stricter regulation from the market and the government.When the asset-liability ratio is lower,banks have more free capital,less risk and more ability to conduct credit expansion,which means stronger risk control ability and potential financing ability.The adverse cyclical effect of the heterogeneity of commercial banks in macroeconomic fluctuation and credit growth is mainly reflected in the commercial banks with high profits,listed companies and low asset-liability ratio.In terms of the control of non-performing loan ratio,when the economy goes up,companies with outstanding heterogeneity will prefer profitable projects under better operating efficiency and debt management level,thus causing the increase of non-performing loan ratio.When the economy goes down,such banks,under the risk control requirement,will strengthen the supervision of the credit delivery of high-risk projects,thus reducing the non-performing loan ratio.Compared with the existing literature,this paper may have the following three main innovations.Firstly,it enriches the literature related to the consequence of macroeconomic fluctuation,which not only helps government understand how frequent policy change will affect bank credit delivery speed and risk diffusion but also answers the credit risk contagion effect under economic policy uncertainty.Secondly,it enriches the study on the credit risk control of commercial banks since it generally answers whether commercial banks have procyclicality effect or counter cyclical effect.This paper further reveals whether credit risk of commercial banks will deteriorate when these banks suffer external policy uncertainty.Thirdly,the research from bank heterogeneity analyzes the counter measures of commercial banks when they face external economic uncertainty,broadening the study of self-governance mechanism of banks,which is the channels and mechanisms for banks to control their credit risk.