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Does Bank Funding Stability Reduce Credit Pro-cyclicality?——From the Perspective of Combining Micro and Macro Prudence

【Authors】
GUO Wei, LIAN Yonghui & ZHANG Lin
【WorkUnit】
GUO Wei (Party School of the Central Committee of C.P.C, 100091)LIAN Yonghui (Capital University of Economics and Business, 100070)ZHANG Lin (Beijing Technology and Business University, 100048)
【Abstract】

This paper builds a theoretical model to analyze the impact of bank funding stability on credit cyclicality and finds that funding stability can reduce the procyclical nature of credit. Empirical tests using a panel of 166 Chinese commercial banks from 2004 to 2016 show that: (1) there is a difference in the cyclicality pattern of credit in different periods, i.e., there was a counter-cyclical characteristic before 2010 and a pro-cyclical characteristic after 2010; (2) funding stability can reduce pro-cyclicality or enhance countercyclicality. Future analysis showed that:(3) the financing cost of the commercial banks is countercyclical, which can be reduced by higher funding stability; (4) for banks with lower capital adequacy ratio, funding stability can more noticeably reduce the credit pro-cyclicality. This paper supports that the deposit bank strategy of commercial banks can be an effective junction point between micro and macro prudential regulation, and also has important policy implications for the coordination of micro and macro prudential regulation systems.

JEL:G21, E44

【KeyWords】
Funding Stability, Credit Pro-cyclicality, Micro Prudential Regulation, Macro Prudential Regulation