How Effective are Macroprudential Policies in China?
IMF Working Papers, March 27, 2013
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Bibliographic details
- Authors: Bin Wang, Tao Sun
- Published: March 27, 2013
- Series: IMF Working Papers
Key findings
- China faces systemic risk in both the time (procyclicality) and cross-sectional (contagion) dimensions.
- Time-dimension systemic risk is reflected as credit and asset price risks.
- Cross-sectional systemic risk is reflected as the links between the banking sector and informal financing and local government financing platforms.
- Empirical analysis based on 171 banks shows that some macroprudential policy tools (e.g., the reserve requirement ratio and house-related policies) are useful, but they cannot guarantee protection against systemic risk in the current economic and financial environment.
- Better-targeted macroprudential policies have greater potential to contain systemic risk pertaining to the different sizes of the banks and their location in regions with different levels of economic development.
- Complementing macroprudential policies with further reforms, including further commercialization of large banks, would help improve the effectiveness of those policies in containing systemic risk in China.
Empirical analysis
- Sample: 171 banks.
- Identified policy tools with usefulness: reserve requirement ratio, house-related policies.
- Limitations: Existing macroprudential tools alone cannot guarantee protection against systemic risk given the current economic and financial environment.
Policy implications and recommendations
- Use and refine macroprudential tools such as reserve requirement ratio adjustments and house-related policies as part of the policy mix.
- Better-targeted macroprudential policies should account for:
- Different bank sizes.
- Regional differences in economic development.
- Complement macroprudential measures with structural reforms, including further commercialization of large banks, to enhance overall effectiveness in containing systemic risk.
Subjects and keywords
- Subjects: Banking, Financial sector policy and analysis, Financial sector stability, Housing prices, Macroprudential policy, Macroprudential policy instruments, Prices, Systemic risk
- Keywords: capital account, central bank, Effectiveness, exchange rate, Financial sector stability, financial system, fiscal policy, Global, house price, Housing prices, loan growth, Macroprudential policies, Macroprudential policy, Macroprudential policy instruments, Systemic risk, WP
How Effective are Macroprudential Policies in China? ByBin Wang, Tao Sun. March 27, 2013. IMF Working Papers 2013, 075 (2013).
Content in this bundle
- 1. A Systemic Risk Dashboard