The Impact of Interest Rates on Bank Risk-Taking: A Comparison Between State-Owned Banks and Joint-Stock Banks in China

Since the global financial crisis, commercial banks have highlighted concern about risk management. In 2013, People’s Bank of China deregulated the limitation on bank lending rates, which implies the emergence of a market-oriented interest rate policy. The study aims to investigate the effect of interest rates on bank risk-taking. The empirical results of this study show that interest rates have a relation with bank risk-taking. The short-term interest rate has a negative relation with total risk, idiosyncratic risk, and default risk, but not systematic risk, whereas the long-term interest rate has a positive relation with total risk, idiosyncratic risk, and default risk, but not systematic risk. This study found that state-owned banks are negatively correlated with total risk, systematic risk, and default risk but have idiosyncratic risk compared with joint-stock banks.