Abstract

We take the mandatory establishment of the Inclusive Finance Division in large state-owned banks as a quasi-experiment to explore the impact of inclusive finance policy on operating performance and risk-taking behaviours of small regional banks. Using financial information for Chinese banks from 2013 to 2019, we find that small regional banks' performance deteriorated, and they engaged in more risk-taking activities after the policy shock. Moreover, there are even much sharper performance declines in subsets of city commercial banks, and banks face high competition from large state-owned banks.