The Banks’ Risk-taking Channel Of Monetary Policy

In recent years, China’s economic has developed a lot. The financial system is playing an increasingly important role in the economic. The banking sector is the most important one in our constantly enriching financial system and it continues to occupy an important role in regulating the flow of economic resources and social capital to support the development of key industries. Therefore, the research on banking industry will be of highly theoretical and practical significance. Throughout the outbreak of the US subprime mortgage crisis, to some extent, the long-term low interest rate monetary policy led to the credit expansion of the financial system, the low real interest rates spawned a financial asset bubble and generally increased the level of risk of financial institutions. After the crisis, scholars have done some researches on whether changes in monetary policy would influence banks and other financial institutions’ risk appetite and their risk-taking behavior.Compared with Western countries, China’s development has its own peculiarities. First of all, there are a lot of differences among the provinces and autonomous regions of economic development. The levels of credit and legal system construction also vary significantly. Second, the deposit reserve ratio is a frequently used means for adjusting the economic by the central bank. Once again, although China’s capital market has made considerable progress, the overall level is still very low. The corresponding credit system and the legal system are still not enough to establish a sound capital market and regulatory mechanisms. Thus, the role of monetary policy in our country and its channel effects are particularity. This specificity is the certain structural effects of monetary policy, which means that the same monetary policy would show different effects, such as regional differences and business differences and so on, due to the different objective circumstances.The level of protection and the level of credit are two very important factors among the institutional factors and will affect the choice of lending and the credit level of investment banks and other financial institutions. So, how will the different institutional factors affect the effects of the monetary policy?Combined with the unbalanced state of China’s economic development, taking into account the important role of banking sector in the financial system, in order to understand the impact of monetary policy on the risk taking behavior of financial institutions, this paper use the banking industry as the research object. We analyzed how the monetary policy would affect the banks and further studied the impact of institutional factors on the effectiveness of monetary policy.Through theoretical and empirical analysis, this paper verified the existence of significant negative impact between monetary policy and bank exposure, the central bank can influence the bank’s risk-taking behavior through specific monetary policy, and guide the economic development and resource flows. Second, the bank’s capital adequacy ratio, the return on assets, the size and the degree of macro-economic conditions showed a negative relationship with the bank’s risk, in line with the assumptions of economic theory. This means that the bank does not exist independently of macroeconomic situation, its own operating results, the size and destination etc. Policy-makers and operators must fully consider the role of external conditions in order to make more rational adjustments. Third, this paper verified the level of legal protection and credit level will significantly affect the effects of monetary policy. The level of legal protection relates to all aspects of economy and society, and affects all types of assets to the bank, therefore, significantly strengthens the effect of monetary policy on bank risk-taking conduction. As an important reference conditions of bank credit assets’ approval, credit levels will affect the security of bank credit assets, and strengthen the impact of monetary policy changes on non-performing loan ratio but not on the risk-weighted assets.