Associate Prof. PENG Yuchao from School of Finance, Central University of Finance and Economics gave a lecture entitled "Bank Risk-Taking and Monetary Policy Transmission: Evidence from China".

Abstract：China implemented Basel III in 2013 that increased the sensitivity of bank assets to risk-weighting. We study how the regulation changes have affected bank risk- taking, using confidential loan-level data obtained from a large Chinese bank, merged with firm-level data. We use a difference-in-difference identification, exploiting the cross-sectional differences in bank lending behaviors between high-risk and low-risk bank branches before and after the new regulations. This identification approach is motivated by a theoretical model of bank portfolio choices. The model predicts that increasing risk-weighting sensitivity reduces bank risk-taking, both on average and conditional on monetary policy easing, with larger reductions in risk-taking for banks facing higher idiosyncratic risks. Consistent with theory, our evidence shows that bank branches— especially those with a relatively poor history of non-performing loans—responded to monetary policy easing by raising the share of lending to low-risk borrowers, and in particular, to state-owned enterprises (SOEs) that receive high credit ratings under government guarantees despite their low productivity.