Overcapitalization in China’s banking system

WANG Guogang ( 王国刚 )
Professor, Institute of Finance & Banking, Chinese Academy of Social Sciences
Editorial Note:

Overcapitalization has become an important characteristic of China’s banking system and the central bank has dealt with it by repeatedly raising statutory reserve ratios, hiking deposit and loan interest rates and issuing central bank notes. In 2007, however, China’s tight monetary policy failed to yield immediate effects. How could this happen? What sort of mechanism exists between overcapitalization and monetary policy? This article attempts to answer these questions.

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