Analysis of the risk transmission mechanism of monetary policy in the monetary and financial service sectors from the perspective of asset-liability management

Abstract

The Silicon Valley Bank crisis that occurred in March 2023 highlights the importance of studying the risk transmission mechanism underlying monetary policy. To explore this mechanism in the monetary and financial services sector from the perspective of asset-liability management, the relationships between asset- and liability-side risks and the corresponding action direction of those risks were empirically studied based on the risk-taking channel theory of monetary policy using publicly available information on 176 Chinese monetary and financial services companies covering the period of 2000 to 2022. The analysis shows that asset-side risks are transmitted through monetary policy as liability-side risks in the monetary and financial service sectors. If the liability side passively takes on these risks, the action direction of monetary policy to asset-side risks is determined; when the liability side actively takes on these risks, monetary policy exerts opposite effects on both types of risks. This conclusion somewhat deepens our understanding of the risk transmission mechanism of monetary policy, which is helpful in better formulating and implementing monetary policy.