We investigate the impact of financial geographic density on corporate financial asset holdings in emerging market. We proxy for financial geographic density by calculating the number of financial institutions around a firm within a certain radius based on the geographic distance between the firm and financial institutions. Using data on publicly listed A-share firms in China from 2011 to 2021, we find that financial geographic density has a positive impact on nonfinancial firms’ financial asset investments, especially for the firms located in regions with a larger number of banking depository financial institutions or facing greater market competition. An increase in the number of financial institutions surrounding firms increases corporate financial asset holdings by alleviating information asymmetry. Moreover, we document that Fintech has little impact on the relationship between financial geographic density and corporate financial asset holdings. As the rise of financial geographic density, firms hold more financial assets for precautionary motives, which contribute to corporate innovation.

Using a sample of U.S. commercial banks from 2009 to 2022, we find that the flow of non-core deposits, rather than that of core deposits, becomes more sensitive to bank performance as banks receive increased attention on Twitter. This effect is particularly pronounced during periods of poor bank performance, when Twitter discussions are more influential, and for banks with more liquidity mismatch. Our results suggest that social media, rather than merely disseminating information about bank performance, makes depositors aware of their peers’ attention to banks, thereby intensifying the sensitivity of deposit outflows to weak fundamentals.

This paper examines the consequences of Chinese regulators deviating from a long-standing full bailout policy in addressing the distress of a city-level commercial bank. This policy shift led to a persistent widening of credit spreads and a significant decline in funding ratios for negotiable certificates of deposit issued by small banks relative to large ones. Our empirical analysis reveals a novel contagion mechanism driven by reduced confidence in future bailouts (implicit non-guarantee), contributing to the subsequent collapse of other small banks. However, in the longer term, this policy shift improved price efficiency, credit allocation, and discouraged risk-taking among small banks.

Using the staggered intercity but within-province deregulation of local banks in China as exogenous variations, we evaluate the effect of banking integration across geographical segmentation on capital misallocation. Based on an administrative data set comprehensively covering Chinese manufacturing firms, we find that for firms with initially high marginal revenue products of capital (MRPK), the integration increases physical capital by 19.3%, and reduces MRPK by 33.1% relative to low MRPK ffrms. Our findings are more pronounced for non-statedowned firms and firms with higher exposure to integrated banks. Integration also significantly increases the responsiveness of firms’ investments to deposit shock on other cities within the same province.

We examine the interest rate pass-through in Hong Kong (HK) and Macao to see if the monetary policy transmission mechanism has been impaired since the Global Financial Crisis (GFC). Our results show that, in the post-GFC period, both the long-run and short-run interest rate pass-through from policy rates to prime rates have disappeared in Macao and weakened significantly in HK. The long-term relationship between deposit rates and policy rates no longer exists in either market while the short-term relationship has been reduced significantly. The results indicate that the effectiveness of the monetary policy in HK and Macao has been seriously undermined after the GFC and alternative monetary policy tools were needed.

Understanding the impacts of new technology and innovations on the banking sector is important and of growing interest. However, there is limited research on the detailed channels of the impacts, and consequently, the evaluations for the aggregate welfare impacts. We contribute both empirically and quantitatively. We construct a new data set for Chinese banks. We ffnd banking innovations can improve efficiency, and mostly reduce non-interest costs but not so much on deposit rates. We show the ffnding is quite robust under a battery of checks. In a new structural, quantitative model, banks have heterogeneous capital, decide innovation investment and also risky lending, face regulations on the capital requirement and have limited liability. When aggregate new technology improves, it can reduce financial intermediation costs and social deadweight loss; however, it will also change the bank’s risk consideration and increases moral hazard when the cost is largely reduced. We also find several other new implications for R&D investment credit policy and Capital Requirement policy (CAR).

This paper investigates the consequences of Chinese regulators deviating from a long-standing full bailout policy in addressing a city-level commercial bank’s distress. This event led to a persistent widening of credit spreads and a significant decline in funding ratios for negotiable certificates of deposit issued by small banks relative to large ones. Our empirical analysis pinpoints a novel contagion mechanism marked by diminished confidence in bank bailouts, which accounts for the subsequent collapse of several other small banks. However, the erosion of confidence in government guarantees enhances price efficiency and credit allocation while discouraging risk taking among small banks.

I show that issuing credit cards helps the bank compete for retail deposits in China. When credit card growth increases by 1%, retail deposit growth is expected to rise by 0.2% with regard to peers next year. This effect is stronger for small joint-stock banks compared with big state-owned banks. This is realized by introducing new credit card holders to visit the branch and open a savings account. DID test shows that after a shock that tightened new account opening, banks with higher credit card growth experienced a harsher decline in retail deposit growth. This paper highlights the customer introducing benefit of credit card promotion, which can provide an alternative explanation for the intensified competition in the credit card market in China. It also unveils the strategy that small banks can use to compete for the deposits of big state-owned banks, who intrinsically has more branches and retail customers.

Bank bailouts are systemic in China, having been extended to nearly all distressed banks, including those with no systemic importance. This paper investigates the consequences of regulators seizing control of Baoshang Bank, the country’s first bank failure in two decades. Despite the numerous liquidity and credit provision measures immediately implemented by bank regulators, we find that the collapse of this city-level commercial bank significantly exacerbated funding conditions in the market for negotiable certificates of deposit (NCD), resulting in liquidity distress for other banks. Our empirical analysis demonstrates that the spillover of Baoshang’s collapse is disproportionately concentrated in systemically unimportant (SU) banks, owing to diminished market confidence in government bailouts of SU banks, or implicit nonguarantee. We employ a difference-in-differences approach to show that the Baoshang event had a persistent and significant effect on SU banks’ NCD issuance, increasing credit spreads by 21.9 bps and the likelihood of issuance failure by 6.3%. Our empirical framework further enables us to examine the impact of China’s long-standing guarantee of SU banks, which we find impairs price efficiency, undermines market discipline, encourages excessive risk taking, and raises equity prices.

We document that monetary policy has asymmetric effects on investments by large and small firms in China. Large firms’ investment are highly responsive to monetary expansions, but less affected by monetary contractions. In contrast, small firms’ investments are less responsive to monetary expansions, but significantly affected by monetary contractions. We argue that this asymmetric responses of large and small firms stem from their differential access to credits in a two-tiered banking system. Large firms borrow from the big state-owned banks, which have a strong depositor base, whereas small firms borrow mainly from small banks which does not have a large depositor base and therefore rely heavily on the inter-bank market for financing their loans to small firms. We build a DSGE model with heterogeneous banks, heterogeneous firms, and an inter-bank market that is calibrated to the Chinese data. We show that the model’s quantitative predictions about the effects of monetary policy on large and small firms are consistent with the facts we documented.