Author Information：

Erzhuo Liu, School of Public Finance and Taxation, Capital University of Economics and Business;

Junyi Liu, Department of Economics, Soka University of America;

Qing He, China Financial Policy Research Center & School of Finance, Renmin University of China; 

Tianyu Yao, School of Finance, Renmin University of China

Abstract：

This study employs a dual-data approach, leveraging both bank and city-level datasets, to investigate the collateral consequences of macroprudential regulations, with a specific emphasis on non-regulatory determinants. Our analysis uncovers that such policies inadvertently undermine banking competitiveness by encouraging banks to actively manage their risk and optimize return of asset portfolio, as evidenced by a reduction in banks’ asset growth coupled with an augmentation in their income growth. Employing a difference-in-differences methodology, we capitalize on the exogenous stimulus provided by the enhancement of macroprudential policies in China. Our findings indicate that larger banks are more significantly impacted by these policies, leading to an elevated Lerner Index.