The Impact Of Monetary Policy Uncertainty On Commercial Bank Management

As China’s economy gradually moves from a high-speed growth phase to a high-quality development phase,the traditional development model that relied excessively on scale expansion and excessive investment to drive economic growth can no longer meet the needs of the new economic development situation.In terms of the international situation,facing the sluggish global economic recovery,the rise of unilateralism and protectionism,the emergence of anti-globalization trends,frequent regional conflicts,and the impact of the century’s epidemic,the Chinese economy is entering a new stage where strategic opportunities and risks coexist.Based on the domestic and international environment mentioned above,China has put forward a new development pattern known as"dual circulation".In the process,China has introduced a series of macroeconomic regulation policies to cushion shocks and stabilize the economy.The report of 19^th CPC National Congress emphasized the need to strengthen the dual-pillar regulatory framework of monetary policy and macro-prudential policy,deepen the market-oriented reforms of interest rates and exchange rates,and enhance the financial sector’s ability to serve the real economy.Furthermore,the 2022 Central Economic Work Conference further pointed out the need to continue implementing proactive fiscal policies and prudent monetary policies,increase the intensity of macroeconomic policy regulation,strengthen coordination among various policy types,and form a joint effort to promote high-quality development.Despite the strong support these policies provide to the macroeconomy,frequent policy adjustments have also brought about policy uncertainty.China’s financial system has long been centered around commercial banks,which possess a wide range of financial and customer resources compared to other financial institutions.Since monetary policy typically cannot directly affect micro-level entities,commercial banks serve as intermediaries in the transmission of monetary policy.This means that monetary policy cannot bypass the role of commercial banks as financial intermediaries when it comes to transmitting its effects to micro-level enterprises.The prudence of commercial bank operations and the rationality of their decision-making are directly related to the effectiveness of monetary policy in promoting the real economy.Therefore,in the face of rising monetary policy uncertainty,it is necessary to thoroughly analyze the specific impact of monetary policy uncertainty on the operational management of commercial banks to ensure the effective transmission of monetary policy and the orderly operation of the real economy.In this context,this thesis follows a research logic of"raising questions-analyzing issues-solving problems."By combining theoretical analysis and empirical research,and based on quantifying the China monetary policy uncertainty index,it focuses on the three principles of"safety","liquidity"and"profitability"of commercial banks management.It chooses four perspectives,namely bank loan loss provisions,asset securitization,liquidity hoarding,and total factor productivity,to deeply investigate the impact of monetary policy uncertainty on bank management.Specifically,the study addresses the following four questions.First,what is the impact of monetary policy uncertainty on the loan loss provisions of commercial banks,and through what mechanisms does it affect bank loan loss provisions?Second,how does monetary policy uncertainty affect bank asset securitization,what specific pathways are involved,and how does the emergence of digital finance play a regulatory role?Third,what effects does monetary policy uncertainty have on liquidity hoarding of banks,what are the specific impact pathways,and how does liquidity hoarding behavior affect bank risk preferences or risk-taking in the context of policy uncertainty?Fourth,how will monetary policy uncertainty affect the operational efficiency of banks,as measured by total factor productivity?What are the possible mechanisms of this impact,and how does asset securitization,as a form of financial innovation in banks,impact total factor productivity?The main conclusions drawn from this research are as follows:（1）The rise in monetary policy uncertainty significantly promotes the loan loss provisions of Chinese commercial banks.As monetary policy uncertainty increases,banks face higher operational risks.Driven by prudential principles,banks tend to set aside more loan loss provisions.Additionally,bank loan loss provisions have a forward-looking nature.When commercial banks anticipate increased credit risk in the future and a downturn in the macroeconomic conditions,they increase loan loss provisions to address potential risks.（2）Monetary policy uncertainty leads to the expansion of bank asset securitization activities.This is primarily because monetary policy uncertainty hinders liquidity creation by banks,worsens the liquidity structure of banks,increases bank credit risk,and reduces shadow banking activities.Asset securitization serves to alleviate these adverse effects and thus expands during periods of monetary policy uncertainty.From the perspective of digital finance,the rise of digital finance weakens the promotion effect of monetary policy uncertainty on bank asset securitization,resulting in a negative regulatory effect.（3）When facing an increase in monetary policy uncertainty,the level of liquidity hoarding in banks also rises.In terms of the components of liquidity hoarding,both asset-side and liability-side liquidity hoarding increase due to the negative impact of monetary policy uncertainty.The primary reason behind this result is that as monetary policy uncertainty rises,banks,driven by precautionary motives,engage more in inter-bank transactions to ensure higher liquidity levels.This is reflected in the increased proportions of inter-bank assets and inter-bank liabilities.Moreover,the increased proportions of inter-bank assets and inter-bank liabilities also lead to a decrease in the proportion of illiquid assets of banks,thereby increasing the overall level of liquidity hoarding in banks.Additionally,by exploring the impact of liquidity hoarding on bank risk preferences under monetary policy uncertainty,it is found that liquidity hoarding can effectively reduce short-term risk preferences of banks,achieving the goal of reduce bank risk-taking.However,empirical results further indicate that the impact of liquidity hoarding on bank risk preferences lacks a long-term effect.Therefore,while liquidity hoarding is a reasonable response to policy uncertainty,it may not be the optimal way.Banks need to moderately reserve liquidity based on their own operational conditions and seek better risk management measures.（4）The increase in monetary policy uncertainty significantly inhibits the total factor productivity of banks.The mechanism is that monetary policy uncertainty suppresses the growth of bank liabilities’costs,capital regulation levels,and earnings management levels,all of which impact the growth of total factor productivity.Heterogeneity analysis results show that monetary policy uncertainty has a more pronounced inhibitory effect on the total factor productivity of rural commercial banks and unlisted banks.Furthermore,heterogeneity analysis of income structure diversification shows that banks with a higher degree of income structure diversification experience a more pronounced decline in total factor productivity when monetary policy uncertainty rises.The impact of bank innovative business reveals that banks engaging in asset securitization activities experience insignificant adverse effects from monetary policy uncertainty on their total factor productivity.This suggests that the development of bank asset securitization,as an important bank innovation,is conducive to mitigating the inhibiting influence of monetary policy uncertainty on total factor productivity growth.Compared with previous literature,this thesis’s contributions encompass several aspects.Firstly,this thesis contributes to the understanding of the impact of monetary policy uncertainty on bank management.It not only supplements research on the influence of macroeconomic policy factors on bank management but also focuses specifically on monetary policy.Monetary policy represents one of the most direct forms of policy affecting commercial banks,and studying it from the perspective of monetary policy uncertainty provides a more precise reflection of the actual impact of macroeconomic policy changes on banks.Secondly,the study enriches research on the effects of monetary policy uncertainty on micro-level entities.Existing research predominantly discusses the impact of monetary policy uncertainty on macroeconomics and micro-level entities but has limited examination of the relationship between monetary policy uncertainty and the commercial banks management.Commercial banks operate at the micro-level and serve as intermediaries in the transmission of macroeconomic policies to enterprises.The effectiveness of monetary policy implementation largely depends on the smooth transmission through commercial banks.Therefore,investigating how monetary policy uncertainty influences the management decisions of commercial banks complements research on the impact of monetary policy uncertainty at the micro-level.Thirdly,this thesis systematically explores the relevant content of bank management and decision-making.By focusing on the"safety","liquidity"and"profitability"principles of bank management and considering aspects such as loan loss provisions,asset securitization,liquidity hoarding,and total factor productivity,this thesis provides insights into how commercial banks respond to the challenges posed by monetary policy uncertainty.It reveals that when monetary policy uncertainty rises,banks’total factor productivity tends to decrease,thus supplementing research on the negative impact of uncertainty shocks on bank operational efficiency.Moreover,as specific measures in response to uncertainty shocks,commercial banks tend to increase loan loss provisions,engage in asset securitization activities,and hoard additional liquidity.This provides both theoretical basis and empirical support for commercial banks to formulate more sound operational management decisions when facing external adverse shocks.