Government intervention in Chinese rural commercial banks – A helping hand or a grabbing hand?

ABSTRACT

We show that government intervention deteriorates the Chinese rural commercial banks’ capital efficiency when fiscal or political pressure is high, an evidence supporting the grabbing-hand view of government. On the other hand, government intervention does not improve bank capital efficiency when the banking market is more competitive, showing no significant helping hands.

KEYWORDS:

• Government intervention in banks
• bank capital efficiency
• Chinese rural commercial banks
• helping/grabbing-hand view of government

JEL CLASSIFICATION:

• G21
• G28
• G32

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ A similar argument can be found in Cho (2012) at a global level, where Korean government protected local banks from global competition during the Asian financial crisis.

² Our input components include retained earnings ratio, asset-liability ratio, and equity ratio. The desirable outputs include return on equity, return on assets, deposit size, loan size, and leverage ratio. The undesirable output is represented by nonperforming loan ratio. Tan and Anchor (2017) also use this DEA to measure Chinese bank efficiency, but they do not include undesirable outputs.

³ Seventeen of the 46 CRCBs do not have complete updated data beyond 2016 as of early 2020.

Additional information

Funding

This work was supported by the National Social Science Foundation of China [#14BJY104] and Shanxi Social Science Foundation, China [#2019D008].