Types of Loans Interacting with Types of Banks. Since the share of the amount of risky entrusted lending facilitated by nonbank trustees in total risky entrusted loans was only 23.3% during our sample period of 2007-2013, it is not surprising that the impact of monetary policy changes on these loans is estimated to be insignificant. The remaining share was channeled by com- mercial banks; among them, small banks funneled risky entrusted lending as much as large banks did (37.2% vs. 39.5%). Now that Section 2.4.2 establishes evidence that banks were principally responsible for channeling more risky entrusted loans when money growth slowed, a natural question is whether small banks behave differently from large banks as we find in Section 2.4.2. To answer this question, we expand the triple-interaction regression (2.4) by separating large and small banks as follows: log Ss = α + αt + αsec + αggt−1 + βsgt−1I (Smallb) + βAgt−1I (Largeb) + γngt−1I (Riskyi) + γsgt−1I (Smallb) I (Riskyi) + γAgt−1I (Largeb) I (Riskyi) + Controlib + εs, (2.5) where additional control variables Controlib are listed in Table 2.9. Regression (2.5) allows the interactions between types of loans and types of banks and is thus our benchmark regression for this paper. The estimated results for nonbank trustees, as reported in Table 2.8, remain the same. That is, nonbank trustees tend to facilitate non-risky, rather than risky, en- trusted lending during the period of monetary slowdown. Although risky entrusted lending channeled by both large and small banks increases in response to monetary contractions, small banks tend to do more than large banks in both magnitude and significance. According to the estimates reported in Table 2.8, a one-percentage-point drop in M2 growth has the impact of a 7.57% increase in risky entrusted lending fun- neled by small banks and the significance level of the estimate is 0.002%, while risky entrusted lending channeled by large banks is estimated to increase by 5.28% in- crease with the 3% significance level. The significantly estimated impact for banks as a whole, reported in Table 2.7, is between these two estimates (−5.28 > −6.58 > −7.57). Consistent with the results reported in Table 2.6, the effect on risky lend- ing via small banks is stronger than that via large banks in both magnitude and significance.
