The Impact Of Deleveraging Policy On Risk-taking Of Commercial Banks

The financial crisis,originated in subprime mortgage crisis,happened in 2008 hit the global economic order hard.In order to alleviate the adverse effects of the financial crisis and accelerate the process of economic recovery,the government of China adopted a package of expansionary monetary policies.A large amount of liquidity has been released,leading to a rapid increase in the leverage ratio of enterprises,residents and the local government.To this end,the Central Committee attaches great importance to the supply-side structural reform.In November 2015,President Xi made an important speech at the 11th meeting of the Central Leading Group for Financial and Economic Affairs,and proposed the supply-side structural reform for the first time.Supply-side reform and deleveraging of China have officially begun.In the process of reducing leverage and releasing financial risks,how the risk tolerance of the banking system changes and whether the asset structure changes as expected have been discussed by many scholars.The six big state-owned banks,joint-stock banks,foreign-funded banks,urban commercial banks and rural commercial banks are very different in terms of asset size and structure.Different types of banks are bound to have different reactions to deleveraging.So what are the differences in their asset structure and the changes in their risk tolerance?These problems have very important practical significance to the future financial supervision and the open policy.Based on the setting of the risk-taking index Zscore in Stiroh(2004a,b),this paper constructs a fixed effect regression model to study the impact of deleveraging on bank stability,and further makes an in-depth analysis of the impact of deleveraging on bank loan structure,bank safety and profitability,and bank heterogeneity.By analyzing the results of the model,three conclusions are drawn.First,deleveraging increases bank stability and reduces asset risk.Under the pressure of deleveraging policy,banks have to screen their assets more carefully and retain better assets.Secondly,after the implementation of deleveraging policy,the average asset-liability ratio of banks declined,and the volatility of asset-liability ratio declined.On the one hand,the optimization of banks’ asset structure is reflected in the increase of the proportion of high-quality assets;on the other hand,due to the improvement of the standards for assets,the number of enterprises conforming to the standards of borrowing is also reduced,and the balance sheet of banks is reduced,resulting in a decline in total profits.But because default rates on high-quality assets are low,the volatility of banks’ returns has fallen.Finally,the effect of deleveraging has heterogeneous effects in banks.Under the deleveraging policy,the stability of the six major state-owned banks,joint-stock banks and urban commercial banks changed greatly,while the change of rural commercial banks was small.Rural commercial banks mainly lend to small businesses and individuals,with a relatively stable scope and a smaller range of assets to choose from.So the effect of deleveraging on rural commercial banks is less obvious.The innovation and contribution of this paper are as follows.The de-leveraging policy of the first,most studies focused on its effect on the entity enterprise production,but this article focuses on bank decision-making and risk appetite.It analyzed in a comprehensive way to leverage policies in fact relations between the important role of,is also the supplement of the former related research literature.Secondly,the literature on bank behavior mostly adopts the financial statement data of banks and enterprises,while this paper uses loan-grade data.On the one hand,the detailed data provides more perfect information and more detailed evidence for the analysis of bank behavior in this paper;On the other hand,the data of loan grade also provides the possibility to control the fixed utility of higher latitude,which greatly reduces the influence of the missing variables on the parameter estimation of the model in this paper and makes the estimation in this paper more accurate than that in previous literatures.Finally,this paper combines Bankscope database and corporate loan database collated by GTA and extracts text information,which also opens data sources for a more comprehensive analysis of bank behavior.