IDEAS home Printed from https://ideas.repec.org/a/eee/finlet/v63y2024ics1544612324003234.html
   My bibliography  Save this article

Shadow banking, financial regulation, and bank risk in China

Author

Listed:
  • Dong, Yan
  • Dong, Mengyao
  • Tan, Suhang
  • Ge, Ran

Abstract

China's 2018 rules on wealth management products (WMPs) have led to determined efforts by regulators to reduce risk in the shadow banking system. Through theoretical model and empirical testing, we explore the impact of the regulation on WMPs and bank performance. Our study finds that after the regulation, banks changed the issuance structure and their profit and risk reduced. The capital did not flow back to on-balance sheet business and the return of WMPs decreased after the regulation.

Suggested Citation

  • Dong, Yan & Dong, Mengyao & Tan, Suhang & Ge, Ran, 2024. "Shadow banking, financial regulation, and bank risk in China," Finance Research Letters, Elsevier, vol. 63(C).
    • Handle: RePEc:eee:finlet:v:63:y:2024:i:c:s1544612324003234
    DOI: 10.1016/j.frl.2024.105293
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1544612324003234
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.frl.2024.105293?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Chen, Zhuo & He, Zhiguo & Liu, Chun, 2020. "The financing of local government in China: Stimulus loan wanes and shadow banking waxes," Journal of Financial Economics, Elsevier, vol. 137(1), pages 42-71.
    2. Roland Meeks & Benjamin Nelson & Piergiorgio Alessandri, 2017. "Shadow Banks and Macroeconomic Instability," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 49(7), pages 1483-1516, October.
    3. Luo, Ronghua & Fang, Hongyan & Liu, Jinjin & Zhao, Senyang, 2019. "Maturity mismatch and incentives: Evidence from bank issued wealth management products in China," Journal of Banking & Finance, Elsevier, vol. 107(C), pages 1-1.
    4. Kaiji Chen & Jue Ren & Tao Zha, 2018. "The Nexus of Monetary Policy and Shadow Banking in China," American Economic Review, American Economic Association, vol. 108(12), pages 3891-3936, December.
    5. Allen, Franklin & Qian, Yiming & Tu, Guoqian & Yu, Frank, 2019. "Entrusted loans: A close look at China's shadow banking system," Journal of Financial Economics, Elsevier, vol. 133(1), pages 18-41.
    6. Zhao, Xiaoqing & Yao, Chen, 2024. "Exacerbation or suppression? Digital transformation and shadow banking activities of non-financial firms," Finance Research Letters, Elsevier, vol. 61(C).
    7. Hodula, Martin, 2022. "Bringing the flashlight: Shadow banking in European Union countries," Finance Research Letters, Elsevier, vol. 47(PB).
    8. Simon Wolfe, 2000. "Structural effects of asset-backed securitization," The European Journal of Finance, Taylor & Francis Journals, vol. 6(4), pages 353-369.
    9. Chen, Shi & Yao, Wenyu & Huang, Fu-Wei, 2021. "Multiple shadow insurance activities and life insurance policyholder protection," Finance Research Letters, Elsevier, vol. 38(C).
    10. Huang, Ji, 2018. "Banking and shadow banking," Journal of Economic Theory, Elsevier, vol. 178(C), pages 124-152.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Wei, Xin & Liu, Xi & Zhang, Xueyong, 2022. "Shadow banking and the cross-section of stock returns," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 81(C).
    2. Ma, Yongfan & Hu, Xingcun, 2024. "Shadow banking and SME investment: Evidence from China's new asset management regulations," International Review of Economics & Finance, Elsevier, vol. 93(PA), pages 332-349.
    3. Yan, Youliang & Wang, Maochuan & Hu, Guoliu & Jiang, Chengxin, 2024. "Does Confucian culture affect shadow banking activities? Evidence from Chinese listed companies," Research in International Business and Finance, Elsevier, vol. 68(C).
    4. Ridoy Deb Nath & Mohammad Ashraful Ferdous Chowdhury, 2021. "Shadow banking: a bibliometric and content analysis," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 7(1), pages 1-29, December.
    5. Jiang, Bo, 2024. "The real effect of shadow banking regulation: Evidence from China," Emerging Markets Review, Elsevier, vol. 59(C).
    6. Allen, Franklin & Gu, Xian & Li, C. Wei & Qian, Jun “QJ” & Qian, Yiming, 2023. "Implicit guarantees and the rise of shadow banking: The case of trust products," Journal of Financial Economics, Elsevier, vol. 149(2), pages 115-141.
    7. repec:zbw:bofitp:2021_015 is not listed on IDEAS
    8. Phuong Mai Le, Vo & Matthews, Kent & Meenagh, David & Minford, Patrick & Xiao, Zhiguo, 2022. "Regulatory arbitrage, shadow banking and monetary policy in China," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 80(C).
    9. Yan Jiang & Yaping Xu & Shengsheng Li, 2022. "How Does Monetary Policy Uncertainty Influence Firms’ Dynamic Adjustment of Capital Structure," SAGE Open, , vol. 12(1), pages 21582440211, January.
    10. Si, Deng-Kui & Wan, Shen & Li, Xiao-Lin & Kong, Dongmin, 2022. "Economic policy uncertainty and shadow banking: Firm-level evidence from China," Research in International Business and Finance, Elsevier, vol. 63(C).
    11. Acharya, Viral & Qian, Jun & Su, Yang & Yang, Zhishu, 2020. "In the Shadow of Banks: Wealth Management Products and Issuing Banks’ Risks in China," CEPR Discussion Papers 14957, C.E.P.R. Discussion Papers.
    12. Luo, Ronghua & Fang, Hongyan & Liu, Jinjin & Zhao, Senyang, 2019. "Maturity mismatch and incentives: Evidence from bank issued wealth management products in China," Journal of Banking & Finance, Elsevier, vol. 107(C), pages 1-1.
    13. Chen, Yunping & Chen, Huanhuan & Li, Guorong & Jiao, Dongdan & Xu, Xiangyun, 2021. "Time-varying effect of macro-prudential policies on household credit growth: Evidence from China," Economic Analysis and Policy, Elsevier, vol. 72(C), pages 241-254.
    14. Cai, Yue, 2021. "Expansionary monetary policy and credit allocation: Evidence from China," China Economic Review, Elsevier, vol. 66(C).
    15. Zhang, Qiuyue & Que, Jiangjing & Qin, Xiuting, 2023. "Regional financial technology and shadow banking activities of non-financial firms: Evidence from China," Journal of Asian Economics, Elsevier, vol. 86(C).
    16. Jeffery (Jinfan) Chang & Ting Yang & Yanping Shi, 2022. "Finance Leases: In the Shadow of Banks [Entrusted loans: a close look at China’s shadow banking system]," Review of Finance, European Finance Association, vol. 26(3), pages 721-749.
    17. Wan, Xiaoli & Margaritis, Dimitris, 2024. "Shadow banking and loan pricing of commercial banks: Evidence from China," Emerging Markets Review, Elsevier, vol. 60(C).
    18. Si, Deng-Kui & Li, Xiao-Lin, 2022. "Shadow banking business and firm risk-taking: Evidence from China," Research in International Business and Finance, Elsevier, vol. 62(C).
    19. Feng Min & Fenghua Wen & Jiayu Xu & Nan Wu, 2023. "Credit supply, house prices, and financial stability," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(2), pages 2088-2108, April.
    20. Xu Feng & Xiaowen An & Yahui An & Yajun Xiao, 2024. "Shadow Funding and Economic Growth: Evidence from China," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 56(2-3), pages 589-611, March.
    21. Ren, Xiaoyi & Shao, Huan, 2022. "Non-state shareholder governance and shadow banking business: Evidence from Chinese state-owned manufacturing enterprises," Research in International Business and Finance, Elsevier, vol. 60(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finlet:v:63:y:2024:i:c:s1544612324003234. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/frl .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.