Strong financial regulation and interbank activities in China

This study employs a Continuous difference-in-differences (DID) design to examine the impact of strong financial regulation on interbank activities in China. Using a natural experiment of the New Regulation on Asset Management, we find that strong financial regulation significantly reduces interbank activities. Our conclusions underwent multiple robustness tests to ensure its validity. This study offers theoretical and empirical insights into the effectiveness of financial regulation, highlighting the importance of robust regulatory frameworks in maintaining financial stability and mitigating systemic risks. The findings suggest that stringent financial regulations can effectively control speculative activities and enhance the overall health of the banking sector, providing valuable guidance for policymakers in designing and implementing financial regulations.