Financial repression and bank risk-taking behavior: Evidence from listed commercial banks in China

As a signal of emergence of market-oriented interest rate policy, People's Bank of China (PBOC) deregulated bank loan prime rates in 2013. This leads commercial banks should be serious concern about interest rate risk management. The aims of the study is to examine the influence of financial repression on bank risk-taking on the basis of a sample of 16 listed commercial banks in China spanning the period from 2008 to 2014. The study employs independent variables of required reserve ratio, deposit prime rate and loan prime rate as proxies of financial repression and dependent variables of non-performing loan ratio, total risk and Z value to measure bank risk-taking behavior. The empirical results of the study indicate that required reserve ratio has negative effect on bank risk-taking. Deposit prime rate has positive effect on bank risk-taking, whereas loan prime rate has negative effect on bank risk-taking.