Do regulations reduce risks in Chinese banking?

摘要

We attempt to explain how regulations impact bank risk-taking behaviors in China, and reach the conclusions that neither capital adequacy requirement nor deposit insurance can reduce the risks of Chinese commercial banks, and the latter can even induce moral hazards. Fortunately, market discipline can mitigate the hazards. Furthermore, we deduce that the more sufficient bank information disclosure is, the stronger market constraints are. The banking risk eruption can be effectively prevented by restricting risk behaviors of individual banks.