Reserve Requirements as Window Guidance in China

This paper reviews the impact of RRR in China on the asset quality of commercial banks since 2005 – and thus contributes to the research on reserve requirements' impact on the banks' asset quality. By applying the technique of robust regression on a large data set that includes the most important commercial financial institutions in China, this paper shows that setting reserve requirements does indeed have an impact on banks' asset quality.However, the impact is more of a superficial nature, more akin to window guidance, as the policy appears to inform banks more about the policy stance than to truly induce them into choosing more creditworthy clients in the long term