["Contemporary Economic Policy, EarlyView. ", "\nAbstract\nThis paper examines how targeted reserve requirements shape bank lending behavior and financial stability in China. Using bank‐branch‐level data, we show that the 2008 TRR policy expanded SMB lending by 14.3%, broadened firm‐level credit access by 45.8%, but raised non‐performing loan ratios by 5.2 percentage points. Heterogeneity analyses by trade exposure and bank sub‐type alleviate the concern that differential GFC balance‐sheet damage, rather than the TRR policy, drives our results. County‐level analysis shows greater policy exposure boosted GDP growth through manufacturing and investment. These findings highlight a tension between credit expansion and financial stability in TRR‐driven policies.\n"]