Bank branching deregulation and the credit risk of the regional banking sector: Evidence from city commercial banks in China |
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| Institution: | 1. Academy of Mathematics and Systems Science, Chinese Academy of Science, China;2. School of Business, University of Wollongong, Australia;3. School of Sociology and Political Science, Shanghai University, China;4. School of Public Economics and Administration, Shanghai University of Finance and Economics, China;1. College of Business Administration, Capital University of Economics and Business, Zhangjialukou Road No.121, Fengtai District, Beijing, China;2. Department of Business and Information Technology, Missouri University of Science and Technology, 101 Fulton Hall, 301 W. 14th Street, 65409 Rolla, MO, USA;3. Nankai Business School, Nankai University, 94 Weijin Road, Tianjin, China;1. Business School, Zhengzhou University, Zhengzhou, PR China;2. Lingnan College, Sun Yat-sen University, Guangzhou, PR China;3. School of Finance & Southern China Institute of Fortune Management Research, Guangdong University of Foreign Studies, Guangzhou, PR China;1. Department of Finance, College of Business, National Pingtung University, Taiwan;2. Department of Finance, College of Business, Chung Yuan Christian University, Taiwan;1. Department of Accounting, Faculty of Economics and Business, Universitas Gadjah Mada (Center for Management Accounting Studies and Micro, Small, and Medium Enterprises), Jalan Sosio Humaniora 1, Bulaksumur, Yogyakarta 55281, Indonesia;2. Macquarie Business School, Macquarie University, 4 Eastern Road, Macquarie Park, NSW 2109, Australia |
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| Abstract: | From 2006 to 2011, with the change in regulatory policies, most regions of China relaxed restrictions on the intercity branching of city commercial banks, which led to a significant increase in the number of nonlocal branches of city commercial banks. We assess the impact of this bank branching deregulation on the credit risk of the regional banking sector across 286 prefecture-level cities in China. We find that deregulation has increased the credit risk of the regional banking sector in host cities by intensifying competition and encouraging risk-taking behaviors such as “lowering lending criteria” and “attracting deposits with higher interest”. Moreover, this effect becomes more pronounced in regions with a higher initial level of the loan-to-deposit ratio and regions with a higher initial level of competition in the banking sector. |
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