Monetary policy uncertainty, market structure and bank risk-taking: Evidence from China

We identify the impact of monetary policy uncertainty (MPU) on bank risk-taking by exploiting the regional heterogeneity of bank market structure in China. Our findings show that a bank facing more competition will take more risks following an increase in MPU, compared with a bank facing less competition, thus confirm a positive impact of MPU on bank risk-taking. In addition, we find that MPU positively affects bank risk-taking by deteriorating its profitability and balance sheet. These findings suggest that the central bank can alleviate bank risks by enhancing the transparency of monetary policy.