With the intensification of climate change and the tightening of environmental regulations, green bonds have emerged as a key sustainable financing instrument, valued for their cost efficiency and issuance convenience. While existing research has largely focused on their environmental benefits, this study investigates their unintended consequences for bank liquidity creation. Analyzing data from 380 Chinese banks from 2014 to 2022 using two-way fixed effects and difference-in-differences models, this paper finds that green bond issuance significantly reduces bank liquidity creation. Specifically, approximately 11.22% of the raised funds remain held within banks rather than flowing into the real economy. The mechanism analysis reveals that green bonds influence liquidity creation through three distinct channels: the earmarking effect, the signaling effect, and the stabilizer effect. The earmarking effect creates asset rigidity due to legally binding commitments, which prevent funds from being diverted to other uses and subject them to rigorous monitoring. The signaling effect attracts specialized ESG-oriented investors and intensifies external market scrutiny, thereby imposing greater discipline on banks’ liquidity management. Simultaneously, the stabilizer effect, reflected in improved financial indicators such as lower funding costs and higher profitability, encourages more conservative liquidity management. Furthermore, these impacts are moderated by regulatory intensity and bank stability, where stricter regulation and greater stability amplify the reduction in liquidity creation. These findings suggest several policy implications: implementing a differentiated regulatory framework based on banks’ stability profiles, establishing targeted liquidity support mechanisms for green assets, and developing coordinated incentive policies.
Yu et al. (Sat,) studied this question.