1. The effect of ownership on the prudential behavior of banks: the case of China Discussed by Jun YAO The Hong Kong Polytechnic University

2. Topic This paper examines the effect of ownership structure on bank prudence using Chinese data.

3. Main Findings Joint-equity banks have higher excess reserves ratios, lower loan to assets ratios and higher deposit to loan ratios than state- owned banks. The difference is still significant after controlling for macro economy variables. Over time, state-owned banks have higher excess reserves ratios, lower loan to assets ratios and higher deposit to loan ratios.

4. Conclusion Joint-equity banks are more prudent than state-owned banks because they have better incentive. Over time, because of the efficient bank reforms, state-owned banks become to be more prudent.

5. Overall The research on the effect of bank ownership structure is very important especially for emerging economies. The author is very careful and hand-collected most of the data. The research has high reliability. The research is quite informative.

6. Discussion The more conservative the better? Bank’s performance is also determined by the profitability of investment opportunities. A bank with more profitable investment opportunities should lend more and reserve less. How to verify that capital in state-owned banks has been misallocated to unprofitable projects.

7. Discussion Policy burden It is well known that state-owned banks have a lot of political responsibilities although the policy loans were largely taken over by policy banks. Over time, state-owned banks become to be more prudent? or their policy burden is reduced?

8. Discussion Measure for prudence It’s easy to have high excess reserves ratio, low loan to assets ratio and high deposit to loan ratio. Just lend out less. Lend out less=prudence?

9. Discussion Size effect in bank excess reserves ratio regressions? Bank dummy is not significant after bank assets are controlled. Large banks retain lower excess reserves ratio because of the diversification effect.

10. Some suggestions Show the differences on corporate governance Why managers in the two types of banks have different incentives? If have data, you can compare the corporate governance in the two types of banks. For example: ownership structure, board structure, management compensation structure, management turnover and so on. The information can help us better understand banks in China.

11. Some suggestions State bank*Time This variable is only used in state banks sub- samples. It’s not an interaction term. What about use the interaction term for the whole sample.

12. Some suggestions Descriptive statistics You can report descriptive statistics for the two types of banks separately. So that readers can compare the different characteristics of the two types of banks. ~THE END