Impacts of Financial Market Shock on Bank Asset Allocation from the Perspective of Financial Characteristics of Banks
Given ongoing financial disintermediation and the need for central banks to establish interest rate corridors, commercial banks have increasingly enriched their asset allocation choices, forming an allocation pattern that combines traditional credit assets (loans) and financial assets (interbank and...
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| Format: | Article |
| Language: | English |
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MDPI AG
2019-06-01
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| Series: | International Journal of Financial Studies |
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| Online Access: | https://www.mdpi.com/2227-7072/7/2/29 |
| _version_ | 1818910090879565824 |
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| author | Kun Huang Qiuge Yao Chong Li |
| author_facet | Kun Huang Qiuge Yao Chong Li |
| author_sort | Kun Huang |
| collection | DOAJ |
| description | Given ongoing financial disintermediation and the need for central banks to establish interest rate corridors, commercial banks have increasingly enriched their asset allocation choices, forming an allocation pattern that combines traditional credit assets (loans) and financial assets (interbank and securities investment). Due to the long-standing dual interest rate system in China, the yields of credit assets and financial assets have differed, which means the latter has greater volatility. Using the quarterly panel data of 23 listed commercial banks in China from 2002 to 2017, the empirical results of this paper show that the fluctuation of the return rate of the two types of assets will affect the asset allocation of banks. Specifically, on the one hand, when the price of financial assets falls, which leads to the narrowing of the credit spread between the two types of assets, banks reduce transaction demand to prevent loss and reduce their holdings of financial assets, thus increasing the ratio of their credit assets to financial assets. On the other hand, rising benchmark lending rates leads to the increase in the credit financing cost of demanders, reducing the willingness of demanders to lend, forcing the demander to obtain funds through other channels. This results in the decrease in the ratio of credit assets to financial assets. Furthermore, the financial characteristics of banks also influence the dynamic adjustment range of asset allocation. That is, the lower the reserve ratio and capital adequacy ratio, the smaller the impact of financial asset yield volatility on bank asset allocation. |
| first_indexed | 2024-12-19T22:37:17Z |
| format | Article |
| id | doaj.art-fe994d88cda9450fa347b4fa42ee10ad |
| institution | Directory Open Access Journal |
| issn | 2227-7072 |
| language | English |
| last_indexed | 2024-12-19T22:37:17Z |
| publishDate | 2019-06-01 |
| publisher | MDPI AG |
| record_format | Article |
| series | International Journal of Financial Studies |
| spelling | doaj.art-fe994d88cda9450fa347b4fa42ee10ad2022-12-21T20:03:11ZengMDPI AGInternational Journal of Financial Studies2227-70722019-06-01722910.3390/ijfs7020029ijfs7020029Impacts of Financial Market Shock on Bank Asset Allocation from the Perspective of Financial Characteristics of BanksKun Huang0Qiuge Yao1Chong Li2PBC School of Finance, Tsinghua University, Beijing 100083, ChinaInstitute of Economics, University of Chinese Academy of Social Sciences, Beijing 102488, ChinaPBC School of Finance, Tsinghua University, Beijing 100083, ChinaGiven ongoing financial disintermediation and the need for central banks to establish interest rate corridors, commercial banks have increasingly enriched their asset allocation choices, forming an allocation pattern that combines traditional credit assets (loans) and financial assets (interbank and securities investment). Due to the long-standing dual interest rate system in China, the yields of credit assets and financial assets have differed, which means the latter has greater volatility. Using the quarterly panel data of 23 listed commercial banks in China from 2002 to 2017, the empirical results of this paper show that the fluctuation of the return rate of the two types of assets will affect the asset allocation of banks. Specifically, on the one hand, when the price of financial assets falls, which leads to the narrowing of the credit spread between the two types of assets, banks reduce transaction demand to prevent loss and reduce their holdings of financial assets, thus increasing the ratio of their credit assets to financial assets. On the other hand, rising benchmark lending rates leads to the increase in the credit financing cost of demanders, reducing the willingness of demanders to lend, forcing the demander to obtain funds through other channels. This results in the decrease in the ratio of credit assets to financial assets. Furthermore, the financial characteristics of banks also influence the dynamic adjustment range of asset allocation. That is, the lower the reserve ratio and capital adequacy ratio, the smaller the impact of financial asset yield volatility on bank asset allocation.https://www.mdpi.com/2227-7072/7/2/29financial market shockcredit assetsfinancial assetsfinancial characteristics of banks |
| spellingShingle | Kun Huang Qiuge Yao Chong Li Impacts of Financial Market Shock on Bank Asset Allocation from the Perspective of Financial Characteristics of Banks International Journal of Financial Studies financial market shock credit assets financial assets financial characteristics of banks |
| title | Impacts of Financial Market Shock on Bank Asset Allocation from the Perspective of Financial Characteristics of Banks |
| title_full | Impacts of Financial Market Shock on Bank Asset Allocation from the Perspective of Financial Characteristics of Banks |
| title_fullStr | Impacts of Financial Market Shock on Bank Asset Allocation from the Perspective of Financial Characteristics of Banks |
| title_full_unstemmed | Impacts of Financial Market Shock on Bank Asset Allocation from the Perspective of Financial Characteristics of Banks |
| title_short | Impacts of Financial Market Shock on Bank Asset Allocation from the Perspective of Financial Characteristics of Banks |
| title_sort | impacts of financial market shock on bank asset allocation from the perspective of financial characteristics of banks |
| topic | financial market shock credit assets financial assets financial characteristics of banks |
| url | https://www.mdpi.com/2227-7072/7/2/29 |
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