Macroprudential assessment framework and firms’ access to bank credit: Evidence from China

Abstract

This study investigates how macroprudential policies for managing systematic risk affect bank lending to the real sector. Taking China’s macroprudential assessment (MPA) framework in 2015 as a quasi-natural experiment, our difference-in-differences identification utilizes two-dimensional variations: firms’ reliance on bank financing (i.e., high versus low) and year (i.e., before and after 2015). We find that the MPA framework significantly reduces firms’ access to bank credit, and a one standard deviation increase in firms’ bank dependence lowers the amount of available bank credit by 23.9%. In particular, corporate debt maturity becomes shorter as a result of decreasing long-term debt relative to short-term debt and constrained firms experience a stronger negative credit effect than unconstrained firms, which is consistent with the credit supply theory. Moreover, the decreased bank credit is more pronounced when firms face higher risk, rely more on small banks, and are located in cities with greater growth pressure. In addition, firms experience production shrinkage and bank risk-taking declines. We argue that the MPA framework curbs credit growth while helping to maintain financial stability, providing valuable insights into the economic effects of macroprudential policies in a typical emerging market.