Shadow banking, monetary policy and systemic risk

Abstract

This article aims to analyse the dissimilation effect of shadow banking on monetary policy and to judge the cyclical characteristics of shadow banking. Further, we analyse the dynamic response of shadow banking to financial risk shocks and regulatory shocks, and examine the influence of shadow banking on the transmission path of systemic risks, so as to provide theoretical bases for financial supply-side structural reforms in the context of high-quality development. To this end, this article constructs the multi-sector DSGE model that includes the shadow banking sector and the commercial banking sector that subjects to multiple credit regulatory constraints. And then the five-variable VAR model is used to conduct empirical tests. Empirical research has found that Chinese-style shadow banking exhibits countercyclical characteristics, and the existence of shadow banking reduces the transmission effectiveness of credit channel. Numerical simulation analysis finds that positive interest rate shocks would trigger the expansion of shadow banks and increase leverage, while reducing the credit leverage of commercial banks. Technological impacts such as financial technology have reduced loan premiums and have played a role in multi-channel evacuation of risk accumulation from the perspective of inclusive finance.

Asymmetric effects of monetary policy on non-bank financial intermediation (NBFI) assets: a panel quantile regression approach

“…Similarly, Gong et al (2021) show that positive interest rate shocks would cause NBFI assets to expand while reducing the mainstream banks' credit leverage. A more recent study by Qanas and Raza (2022) also notes that securitization activities increase and the growth rate of traditional (non-securitized) loans decreases following a contractionary MP shock for the panel of 10 European countries.…”

“…In this regard, the impact of MP on NBFI has been a widely contested subject for the last decade (among others, IMF, 2014;Mazelis, 2016;Kim, 2017;Chen et al, 2018;Gabrieli et al, 2018;Nelson et al, 2018;Yang et al, 2019;Agnello et al, 2020;Gong et al, 2021;Giuzio et al, 2021;Qanas and Raza, 2022). Yet, the previous studies have no clear consensus on whether expansionary/contractionary MP enhances or weakens NBFI.…”

Shadow banking contraction and innovation efficiency of tech-based SMEs-based on the implementation of China’s New Asset Management Regulation

“…Another opinion holds that the expansion of shadow banking amplifies systemic financial risks due to unregulated and multiple nesting. At the financial market level, the rapid expansion of shadow banking reduces the proportion of liquidity per unit of social financing, increases the vulnerability of the financial system (Gong et al, 2021 ), and makes credit financing more accessible to large firms, consequently creating financing mismatches (Grochulski & Zhang, 2019 ). At the firm level, in the environment of insufficient supply of long-term funds, firms are prone to the maturity mismatch of “short loans and long investment” in shadow bank financing, which aggravates the financial risks of economic entities (An & Yu, 2018 ; Le et al, 2020 ).…”

“…(2) It enriches the research on the economic consequences of shadow banking contraction from the perspective of firm innovation. Among the existing literature studying the economic consequences of shadow banking expansion (Chernenko & Sunderam, 2014 ; Gong et al, 2021 ; Grochulski & Zhang, 2019 ; Lu et al, 2015 ; Yang et al, 2019 ), there is almost no research on shadow banking contraction. (3) It provides some basis for the formation of a dialectical view of the shadow banking problem in China.…”

“…(3) It provides some basis for the formation of a dialectical view of the shadow banking problem in China. Regarding the impact of shadow banking expansion in China, opposing views have emerged in academia: one is that shadow banking expansion promotes credit development in capital markets (Chernenko & Sunderam, 2014 ; Duca, 2016 ); whereas the other is that shadow banking expansion amplifies systemic financial risks (Gong et al, 2021 ; Le et al, 2020 ; Yang et al, 2019 ). And this study presents empirical evidence on new aspects from the perspective of the relationship between shadow banking contraction and innovation efficiency.…”