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Shadow banking in China: Institutional risks

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  • Li, Jianjun
  • Hsu, Sara
  • Qin, Yanzhi

Abstract

In this paper, we examine China's shadow banking institutions for financial risks. We use a bank stress test to analyze solvency risk for the systemically important financial institutions and the banking system as a whole. We find that there is some risk of bankruptcy and potentially a risk of liquidity shortages, for which we lack sufficient data to run a stress test. We conclude with policy recommendaitons.

Suggested Citation

  • Li, Jianjun & Hsu, Sara & Qin, Yanzhi, 2014. "Shadow banking in China: Institutional risks," China Economic Review, Elsevier, vol. 31(C), pages 119-129.
    • Handle: RePEc:eee:chieco:v:31:y:2014:i:c:p:119-129
    DOI: 10.1016/j.chieco.2014.08.003
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    References listed on IDEAS

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    1. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 24(Win), pages 14-23.
    2. Li, Jianjun & Hsu, Sara (ed.), 2009. "Informal Finance in China: American and Chinese Perspectives," OUP Catalogue, Oxford University Press, number 9780195380644.
    3. Yung-Ho Chiu & Yu-Chuan Chen & Yu Han Hung, 2009. "Basel II and bank bankruptcy analysis," Applied Economics Letters, Taylor & Francis Journals, vol. 16(18), pages 1843-1847.
    4. Rodrigo Cifuentes & Hyun Song Shin & Gianluigi Ferrucci, 2005. "Liquidity Risk and Contagion," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 556-566, 04/05.
    5. Purnanandam, Amiyatosh, 2008. "Financial distress and corporate risk management: Theory and evidence," Journal of Financial Economics, Elsevier, vol. 87(3), pages 706-739, March.
    6. Mr. Martin Cihak, 2007. "Introduction to Applied Stress Testing," IMF Working Papers 2007/059, International Monetary Fund.
    7. Boris Podobnik & Davor Horvatic & Alexander M. Petersen & Branko Urov{s}evi'c & H. Eugene Stanley, 2010. "Bankruptcy risk model and empirical tests," Papers 1011.2670, arXiv.org.
    8. Brehm Stefan, 2008. "Risk Management in China's State Banks - International Best Practice and the Political Economy of Regulation," Business and Politics, De Gruyter, vol. 10(1), pages 1-31, May.
    9. World Bank & International Monetary Fund, 2011. "China : Financial Sector Assessment," World Bank Publications - Reports 15913, The World Bank Group.
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    More about this item

    Keywords

    Shadow banking; China; Stress tests; Banks;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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