Digital transformation of commercial banks and the credit transmission efficiency of monetary policy

Digital technology empowers the digital transformation of commercial banks, profoundly altering the external environment for monetary policy operations. Its impact on the traditional financial system cannot be overlooked. Utilizing commercial banking data from China spanning 2010 to 2021, this paper investigates how the digital transformation of commercial banks affects the credit transmission efficiency of monetary policy and its underlying mechanisms. It reveals that the digital transformation of commercial banks significantly weakens the credit transmission efficiency of monetary policy, thereby diminishing monetary policy's credit regulatory capacity. From the mechanism perspective, the digital transformation reduces bank risk-taking levels and financial frictions, which collectively exert a greater weakening effect on monetary policy transmission efficiency than the enhancing effect created by increased bank competition. Further analysis demonstrates that this digital transformation drives a shift towards longer-term maturities in new loan issuance while simultaneously improving the transmission efficiency of interest rate channels.