Monetary Transmission through Shadow Banks

Xiao, Kairong

doi:10.2139/ssrn.3166114

Cited by 30 publications

(38 citation statements)

References 40 publications

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“…To the contrary, we find compelling evidence that shadow banking responds to changes in the monetary policy rate. This results points to the existence of a shadow banking channel of monetary policy as proffered by Xiao (2018). However, contrary to previous studies, increases in the policy rate result in an immediate decrease in shadow banking activity.…”

Section: Resultscontrasting

confidence: 50%

“…Empirical studies surveyed include those focusing on the linkages between monetary policy and the financial sector through both the risk taking channel and the non-bank financial sector (Nelson et al, 2018, Chen et al, 2017, Borio and Zhu, 2012, Zhou and Tewari, 2019b, Xiao, 2018. Xiao (2018)'s work documents a shadow banking channel of monetary policy for the US. Their study is based on two assumptions, the first being that shadow banks offer inferior services and the other being depositors with different yield sensitivity.…”

Section: Literature Reviewmentioning

confidence: 99%

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Shadow Banking, Bank Liquidity and Monetary Policy Shocks in Emerging Countries: A Panel VAR Approach

Zhou¹

2020

JEBS

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The study provides an analysis of the relationships between monetary policy, shadow banking and bank liquidity in emerging market economies. It is aimed at broadening knowledge on the effect of shadow banking on monetary policy transmission. Furthermore, the study seeks to analyze the impact of changes in bank liquidity on the growth of the shadow banking sector. We employ panel VAR technique to analyse the dynamics of monetary policy, shadow banking and bank liquidity using data for 15 emerging economy countries. A contractionary monetary policy shock results in a decrease in shadow banking and a decrease in bank liquidity. We also find that a positive shock in bank liquidity increases shadow bank growth and a positive shock in shadow banking also increases bank liquidity. The results point to complementarity between shadow banking and bank liquidity; and the interconnectedness between the two markets in emerging economies. We suggest continuous monitoring of shadow banking activities to minimize transmission of risk from the shadow banking system into the banking sector.

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Section: Resultscontrasting

confidence: 50%

Section: Literature Reviewmentioning

confidence: 99%

Shadow Banking, Bank Liquidity and Monetary Policy Shocks in Emerging Countries: A Panel VAR Approach

Zhou¹

2020

JEBS

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“…More broadly, the role of shadow banks in the recent financial crisis has motivated a number of papers that propose theories why shadow banks emerged and why they can become unstable (e.g., Gennaioli, Shleifer, and Vishny (2013) and Moreira and Savov (2017)). Shadow banks are often viewed to emerge in response to tighter regulation (e.g., Plantin (2015); Huang (2018); Xiao (2020); Farhi and Tirole (2020)), or because they produce financial services using a different technology compared to traditional banks (e.g., Gertler, Kiyotaki, and Prestipino (2016); Ordoñez (2018); Martinez-Miera and Repullo (2017); Dempsey (2020)). Our paper captures both views as shadow banks can exist independently of how tightly the traditional banking sector is regulated.…”

Section: Introductionmentioning

confidence: 99%

“…E.g.,Plantin (2015);Huang (2018);Ordoñez (2018);Xiao (2020); Martinez-Miera and Repullo (2017).7 The paper byBuchak, Matvos, Piskorski, and Seru (2018) empirically estimates how much of the rise in shadow banking, i.e., Fintech firms, is due to a change in the regulatory system or a change in technology.8 In contrast toBianchi (2016), our focus is not on whether the government guarantee itself is optimal. 9 E.g Bernanke (2005),.…”

mentioning

confidence: 99%

Financial Regulation in a Quantitative Model of The Modern Banking System

Landvoigt

Begenau

2016

SSRN Journal

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How does the shadow banking system respond to changes in the capital regulation of commercial banks? This paper builds a quantitative general equilibrium model with commercial banks and shadow banks to study the unintended consequences of capital requirements. A key feature of our model are defaultable bank liabilities that provide liquidity services to households. The quality of the liquidity services provided by bank liabilities depends on their safety in case of default. Commercial bank debt is fully insured and thus provides full liquidity. However, commercial banks do not internalize the social costs of higher leverage in the form of greater bankruptcy losses (moral hazard), and are subject to a regulatory capital requirement. In contrast, shadow bank liabilities are subject to runs and credit risk and thus typically less liquid compared to commercial banks. Shadow banks endogenously limit their leverage as they internalize its costs. Tightening the commercial banks' capital requirement from the status quo leads to safer commercial banks and more shadow banking activity in the economy. While the safety of the financial system increases, it provides less liquidity. Calibrating the model to data from the Financial Accounts of the U.S., the optimal capital requirement is around 15%.

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“…Other related work showing declining spreads and rising origination volume includesLevitin and Wachter (2013) andDemyanyk and Van Hemert (2011) Drechsler et al (2017). andXiao (2018) provide theory and evidence that suggests that growth in the shadow banking sector was related to the end of the monetary policy easing cycle in the summer of 2003. See alsoLandier et al (2015) andNagel (2016).…”

mentioning

confidence: 99%