In this paper, we leverage the bank governance reform in China as a laboratory to explore the impact of the banking governance system on lending activities. Specifically, a well-functioning governance system does not improve the bank’s selection abilities due to the regulation constraints. However, a good governance system enhances the bank’s monitoring abilities. Finally, a well-governance bank needs more independent directors on the board, lower shareholdings of the top 1 shareholder, the government as the top 1 shareholder, and fewer risk management committee meetings. Therefore, this paper sheds light on banking governance and has important policy implications for bank sectors in the transition economy.