The Real Effect of Banking Globalisation on Bank Liquidity Creation in China's Banking Sector: Evidence From the Belt and Road Initiative

ABSTRACT To explore the real effect of banking globalisation on bank liquidity creation, we investigate plausibly exogenous variations in the expectation of further banking globalisation under the Belt and Road Initiative (BRI), which further opens the gate to foreign investors. Using data from both listed and unlisted commercial banks in China from 2007 to 2022, we obtain the results showing that implementation of the BRI enhances the on‐balance sheet liquidity creation of banks with foreign investors. Further analysis shows that the BRI has more significant positive economic effects on state‐owned commercial banks and foreign banks. Additionally, banks with foreign ownership that are small, unlisted, or located in eastern coastal regions create more liquidity since the implementation of the BRI. Our findings indicate that deepening banking globalisation plays an outstanding role in China's banking industry.