The Impact of Structural Monetary Policy on Commercial Banks’ Credit Risk: A Quasi-Natural Experiment Based on the Central Bank’s Carbon Emission Reduction Facility

Abstract

Against the backdrop of China’s “Dual Carbon” strategy, structural monetary policy has increasingly been used to support green transition while maintaining financial stability. Taking the Carbon Emission Reduction Facility (CERF), introduced by the People’s Bank of China in November 2021, as a policy shock, this study examines its effect on commercial banks’ credit risk. Using balanced panel data for Chinese commercial banks from 2014 to 2024, a Difference-in-Differences (DID) framework is employed, with the first group of national financial institutions participating in the CERF serving as the treatment group and local city commercial banks and rural commercial banks as the control group. The results suggest that the implementation of the CERF is associated with a decline in credit risk, but the estimated effect on the non-performing loan ratio does not reach conventional levels of statistical significance. This indicates that the policy’s risk-reduction effect had not yet become fully evident during the initial stage of implementation. A possible explanation is that the benefits of lower-cost funding were offset, at least in the short run, by adjustment costs arising from green transformation, including long investment horizons and still-developing risk assessment systems. The main findings remain unchanged after controlling for bank-level characteristics and macroeconomic growth conditions. Overall, the evidence suggests that the influence of the CERF on bank risk is more gradual than immediate. The findings contribute to ongoing discussions of the transmission effects of structural monetary policy and offer insights into how commercial banks manage the balance between green credit expansion and risk control under the “Dual Carbon” agenda.