The impact of regional banks on environmental pollution: Evidence from China's city commercial banks

The unfortunate price paid by the rapid growth of the global economy is the destruction of the ecological environment, yet financial development represented by the establishment of regional financial institutions may have a positive effect on environmental improvement. Based on data of 284 prefecture-level and above cities in China from 1998 to 2018, this research takes the establishment of China's city commercial banks (CCBs) as a quasi-natural experiment and constructs a difference-in-differences (DID) model to explore the impact of these regional banks on regional environmental pollution in China. The results are as follows. First, the establishment of CCBs significantly reduces regional pollution, and the pollution reduction effect of CCBs that have been established for several years and opened branches is more obvious. Second, the establishment of CCBs cuts environmental pollution by improving the innovation capacity, attracting more foreign direct investment (FDI), and upgrading the industrial structure. Third, the higher the economic strength, population size, and degree of marketization a city exhibits, the stronger is the pollution reduction effect of CCBs. Further analysis finds that the effect of CCBs in reducing pollution is higher in cities with strong economic power and large populations, which mainly relates to the innovation promoting effect. When cities have a high degree of marketization, the pollution reduction effect of CCBs generally comes from the innovation promoting effect and the FDI attracting effect. Therefore, cities should continue to improve the operating efficiency of regional banks, properly handle the relationship between regional banks and local governments, optimize the allocation of financial resources, and improve environmental quality through green finance.

Automated summary

The establishment of China's city commercial banks has significantly reduced regional pollution in China by improving innovation capacity, attracting more foreign direct investment, and upgrading industrial structure. The pollution reduction effect of these regional banks is stronger in cities with higher economic strength and marketization levels.