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1 – 10 of over 5000
Article
Publication date: 2 November 2015

James R. Barth, Tong Li, Wen Shi and Pei Xu

The purpose of this paper is to examine recent developments pertaining to China’s shadow banking sector. Shadow banking has the potential not only to be a beneficial…

1678

Abstract

Purpose

The purpose of this paper is to examine recent developments pertaining to China’s shadow banking sector. Shadow banking has the potential not only to be a beneficial contributor to continued economic growth, but also to contribute to systematic instability if not properly monitored and regulated. An assessment is made in this paper as to whether shadow banking is beneficial or harmful to China’s economic growth.

Design/methodology/approach

The authors start with providing an overview of shadow banking from a global perspective, with information on its recent growth and importance in selected countries. The authors then focus directly on China’s shadow banking sector, with information on the various entities and activities that comprise the sector. Specifically, the authors examine the interconnections between shadow banking and regular banking in China and the growth in shadow banking to overall economic growth, the growth in the money supply and the growth in commercial bank assets.

Findings

Despite the wide range in the estimates, the trend in the size of shadow banking in China has been upward over the examined period. There are significant interconnections between the shadow banking sector and the commercial banking sector. Low deposit rate and high reserve requirement ratios have been the major factors driving its growth. Shadow banking has been a contributor, along with money growth, to economic growth.

Practical implications

The authors argue that shadow banking may prove useful by diversifying China’s financial sector and providing greater investments and savings opportunities to consumers and businesses throughout the country, if the risks of shadow banking are adequately monitored and controlled.

Originality/value

To the authors’ knowledge, this paper is among the few to systematically evaluate the influence of shadow banking on China’s economic growth.

Details

Journal of Financial Economic Policy, vol. 7 no. 4
Type: Research Article
ISSN: 1757-6385

Keywords

Article
Publication date: 3 July 2017

Lukas Prorokowski

To explain the shadow banking regime that will be enforced in the European Union by local regulators starting in January 2017.

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Abstract

Purpose

To explain the shadow banking regime that will be enforced in the European Union by local regulators starting in January 2017.

Design/methodology/approach

Recognising the regulatory-induced difficulties in the process of identifying certain types of clients (investment funds) as shadow banking entities, this article provides a decision tree for the shadow banking classification process in order to aid the impacted institutions with the assessment of their clients. With this in mind, the article advises the impacted institutions on the specific steps that should be taken when assessing investment funds for shadow banking flags. Furthermore, the article provides insights into the information required to conduct the shadow banking classification process.

Findings

The regime requires the impacted institutions to assess their clients for shadow banking flags in order to impose limits on credit lines to clients classified as shadow banking entities. The US regulatory jurisdiction will be impacted over a longer term.

Originality/value

The recommendations in this article will be especially useful for investment funds to ensure that the relevant information is clearly stated in their prospectuses in order to avoid being classified as shadow banking entities.

Article
Publication date: 12 January 2021

Yong Tan, Zhenghui Li, Siming Liu, Muhammad Imran Nazir and Muhammad Haris

This study investigates the interrelationships between competitions in different banking markets and shadow banking for the Chinese banking industry over the period…

Abstract

Purpose

This study investigates the interrelationships between competitions in different banking markets and shadow banking for the Chinese banking industry over the period 2003–2017. The current study also examines the determinants of competition in different banking markets and the factors influencing the size of shadow banking.

Design/methodology/approach

Bank competition is measured by the Boone indicator, while the relationship between bank competition and shadow banking is examined through a three-stage least square estimator.

Findings

The findings suggest that a larger volume of shadow banking leads to a decline in the level of competition in the deposit market, loan market and noninterest income market, while an increase in the level of competition in the loan market, deposit market and noninterest income market leads to an expansion of shadow banking. The authors find that higher bank risk and higher developed of stock market reduce the competitive condition in the loan market, and the competition in the deposit market will be enhanced by higher levels of banking sector development and higher levels of inflation, but bank diversification will reduce the level of competition in the deposit market. The authors further find that higher bank profitability and higher stock market development reduce bank competition in the noninterest income market. Finally, the results show that larger bank size and higher development of stock market reduce the size of shadow banking in China, but higher economic growth increases the size of shadow banking.

Originality/value

This is the first piece of research investigating the relationship between bank competition and shadow banking. This will also be the first piece of research examining the determinants of competition in different banking markets and also the factors influencing the size of shadowing banking in China.

Details

International Journal of Emerging Markets, vol. 17 no. 6
Type: Research Article
ISSN: 1746-8809

Keywords

Article
Publication date: 29 July 2014

Tong Li

This paper aims to survey available data sources and put China’s shadow banking system in perspective. Although bank loans still account for the majority of credit…

2552

Abstract

Purpose

This paper aims to survey available data sources and put China’s shadow banking system in perspective. Although bank loans still account for the majority of credit provided to China’s real economy, other channels of credit extension are growing rapidly. The fast expansion of shadow banking has spurred wide concerns regarding credit quality and financial stability.

Design/methodology/approach

This paper explores various data sources, provides an overview of shadow banking activities in China, discusses their close ties with banks and summarizes regulatory issues. Extensive descriptive data are included to provide a comprehensive picture of the nature of shadow banking activities in China. In particular, institutions and products are discussed in great details.

Findings

While China’s shadow banking system is by no means simple, it does not (yet) involve the extensive use of financial derivatives. Rather, shadow banking credit is often directly extended to the real economy. In addition, shadow banks are typically interconnected with commercial banks in various ways. The expanding scale and constantly evolving structure of the shadow banking system has posed challenges for financial regulators.

Originality/value

This paper attempts to quantify the scale and scope of China’s shadow banking activities and provides a consistent framework as the basis for cross-country comparison of shadow banking systems. This is one of the first scholarly research products that discusses the origin, nature and risks of China’s shadow banking system in a regulatory context.

Details

Journal of Financial Economic Policy, vol. 6 no. 3
Type: Research Article
ISSN: 1757-6385

Keywords

Article
Publication date: 7 May 2021

Syed Mehmood Raza Shah, Qiang Fu, Ghulam Abbas and Muhammad Usman Arshad

Wealth Management Products (WMPs) are the largest and most crucial component of China's Shadow banking, which are off the balance sheet and considered as a substitute for…

Abstract

Purpose

Wealth Management Products (WMPs) are the largest and most crucial component of China's Shadow banking, which are off the balance sheet and considered as a substitute for deposits. Commercial banks in China are involved in the issuance of WMPs mainly to; evade the regulatory restrictions, move non-performing loans away from the balance sheet, chase the profits and take advantage of yield spread (the difference between WMPs yield and deposit rate).

Design/methodology/approach

In this study, the authors investigate what bank related characteristics and needs; influenced and prompted the issuance of WMPs. By using a quarterly panel data from 2010 to 2019, this study performed the fixed effects approach favored by the Hausman specification test, and a feasible generalized least square (FGLS) estimation method is employed to deal with any issues of heteroscedasticity and auto-correlation.

Findings

This study found that there is a positive and significant association between the non-performing loan ratio and the issuance of WMPs. Moreover, profitability and spread were found to play an essential role in the issuance of WMPs. The findings of this study suggest that WMPs are issued for multi-purpose, and off the balance sheet status of these products makes them very lucrative for regulated Chinese commercial banks.

Research limitations/implications

Non-guaranteed WMPs are considered as an item of shadow banking in China, as banks do not consolidate this type of WMPs into their balance sheet; due to that reason, there is no individual bank data available for the amount of WMPs. The authors use the number of WMPs issued by banks as a proxy for the bank's exposure to the WMPs business.

Practical implications

From a regulatory perspective, this study helps regulators to understand the risk associated with the issuance of WMPs; by providing empirical evidence that Chinese banks issue WMPs to hide the actual risk of non-performing loans, and this practice could mislead the regulators to evaluate the bank credit risk and loan quality. This study also identifies that Chinese banks issue WMPs for multi-purpose; this can help potential investors to understand the dynamics of WMPs issuance.

Originality/value

This research is innovative in its orientation because it is designed to investigate the less explored wealth management products (WMPs) issued by Chinese banks. This study's content includes not only innovation but also contributes to the existing literature on the shadow banking sector in terms of regulatory arbitrage. Moreover, the inclusion of FGLS estimation models, ten years of quarterly data, and the top 30 Chinese banks (covers 70% of the total Chinese commercial banking system's assets) make this research more comprehensive and significant.

Details

Journal of Economic and Administrative Sciences, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1026-4116

Keywords

Article
Publication date: 11 December 2019

Philip Arestis and Maggie Mo Jia

This paper aims to examine the evolution of house prices in China and especially the effects of different financing channels on China’s house prices.

Abstract

Purpose

This paper aims to examine the evolution of house prices in China and especially the effects of different financing channels on China’s house prices.

Design/methodology/approach

The author use the own theoretical framework and proceed to test the testable hypotheses by using the autoregressive distributed lag bounds test approach for cointegration analysis and the unrestricted error correction model. Quarterly time series data from Q1 2002 to Q2 2016 are used.

Findings

The results suggest that in the short run, bank loans to real estate development and scale of shadow banking have significant positive effects on house prices. In the long run, the scale of shadow banking and disposable income affects house prices positively and significantly.

Originality/value

This study provides more insights into how and to the extent different financing channels affect China’s house prices, particularly the impact of shadow banking on the house prices.

Article
Publication date: 1 November 2011

Peter Watkins

The paper's purpose is to show that the reported (and growing) labour productivity gap between the G7 and OECD countries and the USA might be a factor of the rapid…

1083

Abstract

Purpose

The paper's purpose is to show that the reported (and growing) labour productivity gap between the G7 and OECD countries and the USA might be a factor of the rapid adoption of shadow banking structures and techniques in the USA versus the adoption of those structures in OECD and G7 economies.

Design/methodology/approach

The paper explains the concept and practice of shadow banking and explores the ways in which the various conventions adopted distort reported productivity figures.

Findings

The growing adoption of shadow banking over the period 1974‐2007 has had the effect of increasing the metrics for labour productivity over the same period.

Practical implications

It is clear that those who wish to understand the apparent growing gap between labour productivity of the USA and other G7/OECD nations must look beyond the simple reported figures to identify the ways in which figures are calculated and reported.

Originality/value

The paper shows that reporting of figures to established conventions can be affected by a range of factors, not apparent from looking at those conventions themselves.

Details

International Journal of Productivity and Performance Management, vol. 60 no. 8
Type: Research Article
ISSN: 1741-0401

Keywords

Article
Publication date: 18 October 2021

Syed Mehmood Raza Shah, Yan Lu, Qiang Fu, Muhammad Ishfaq and Ghulam Abbas

Shadow banking has been evolving rapidly in China, with banks actively using wealth management products (WMPs) to evade regulatory restrictions. These products are the…

Abstract

Purpose

Shadow banking has been evolving rapidly in China, with banks actively using wealth management products (WMPs) to evade regulatory restrictions. These products are the largest constituent of China's shadow banking sector. A large number of these products are off-balance-sheet and considered a substitute for bank deposits. China's banking sector, especially the small and medium-sized banks (SMBs), uses these products to avoid regulatory restrictions and sustainability risk in the deposit market.

Design/methodology/approach

This study empirically examined how banks in China, specifically SMBs, utilize these products on a short and long-run basis to manage and control their deposit levels. This study utilized a quarterly panel dataset from 2010 to 2019 for the top 30 Chinese banks, by first implementing a Panel ARDL-PMG model. For cross-sectional dependence, this study further executed a cross-sectional augmented autoregressive distributive lag model (CS-ARDL).

Findings

Under regulations avoidance theory, the findings revealed that WMPs and deposits have a stable long-run substitute relationship. Furthermore, the WMP–Deposit substitute relationship was only significant and consistent for SMBs, but not for large four banks. The findings further revealed that the WMP–Deposit substitute relationship existed, even after the removal of the deposit rate limit imposed by the People's Bank of China (PBOC) to control the deposit rates.

Research limitations/implications

The individual bank-issued WMPs' amount data is not available in any database. Therefore, this study utilized the number of WMPs as a proxy for China's banking sector's exposure to the wealth management business.

Practical implications

This research helps policymakers to understand the Deposit–WMP relationship from the off-balance-sheet perspective. During the various stages of interest rate liberalization, banks were given more control to establish their deposit and loan interest rates. However, the deposit rates are still way below the WMP returns, making WMPs more competitive. This research suggests that policymakers should formulate a more balanced strategy regarding deposit rates and WMPs returns.

Originality/value

This study contributes to the existing literature on China's shadow banking by concentrating on the WMPs. This research represents one of the few studies that analyze regulatory arbitrage in terms of the WMP–Deposit relationship. Moreover, the implementation of CS-ARDL panel data models and multiple data sources makes this study's findings more reliable and significant.

Details

International Journal of Bank Marketing, vol. 40 no. 1
Type: Research Article
ISSN: 0265-2323

Keywords

Article
Publication date: 16 October 2018

Craig Anthony Zabala and Jeremy Marc Josse

The purpose of this paper is to review the continued development of the “shadow banking” market in the USA, namely, lending to the private middle market, defined as…

Abstract

Purpose

The purpose of this paper is to review the continued development of the “shadow banking” market in the USA, namely, lending to the private middle market, defined as financings of $5-100m to non-public, unrated operating entities or pools of assets with not more than $50m in earnings before interest, taxes, depreciation and amortization.

Design/methodology/approach

The analysis includes a continued review of an innovative segment of the financial markets and primary evidence from direct participation in four actual cases of private, non-bank lending between 2013 and 2015 and theoretical observations around that data.

Findings

Although there have been considerable challenges, historically, in providing credit for small and mid-sized businesses in the USA, the authors show further evidence that private middle market capital is growing (post credit crisis) at a dramatic pace, in part because of excessive constraints placed on the regulated depositary institutions. The authors also explain the nature of the shadow banking innovation and how it is intrinsically linked to “arbitraging” often excessively restrictive banking regulation. The growing US shadow banking market, while providing an important service to middle market companies, may pose a new systemic risk post 2007-2008 credit crisis in the USA.

Research limitations/implications

Any generalization is limited because of the difficulty in extrapolating from a small number of specific case studies and the absence of adequate survey data for the US capital markets and the limited examples examined.

Practical implications

This research calls for additional case studies, including participant observation research that offers a unique close-up view of financial behavior that is often beyond the view of regulators and the public. Data obtained may be useful in providing a deeper, more timely understanding of credit market behavior and contribute to efforts at formal financial modeling as well as the development of practical regulatory regimes.

Social implications

The shadow credit market is a key source of funding for the global financial system, thus contributing to job creation and economic growth. The authors demonstrate the value of financial innovations and show that shadow credit fills a void left by depository financial institutions, shifting much of the risk from the public to investors. This research increases transparency in the operation of this market, which is extremely important for the industry, the government and the public. The authors offer a modest attempt at understanding credit behavior to avoid a repeat of the 2007/2008 financial crisis.

Originality/value

Direct participation is unique to the firms studied. Value is in developing a general framework to analyze an emerging credit market in advanced economies.

Details

The Journal of Risk Finance, vol. 19 no. 5
Type: Research Article
ISSN: 1526-5943

Keywords

Article
Publication date: 26 October 2012

Niloy Bose, Salvatore Capasso and Martin Andreas Wurm

The purpose of this paper is to examine the relationship between banking development and the size of shadow economies by employing data on 137 countries over the period…

1844

Abstract

Purpose

The purpose of this paper is to examine the relationship between banking development and the size of shadow economies by employing data on 137 countries over the period from 1995 to 2007. Both cross‐sectional and panel analysis suggest that an improvement in the development of the banking sector is associated with a smaller shadow economy. In addition, the authors find that both the depth and the efficiency of the banking sector matter in reducing the size of shadow economies. These results are robust to a variety of specifications that address multi‐colinearity and endogeneity issues.

Design/methodology/approach

Empirical cross‐section and panel analysis were undertaken.

Findings

The authors find that both the depth and the efficiency of the banking sector matter in reducing the size of shadow economies.

Originality/value

This paper is original. Existing literature has identified a number of factors (e.g. the burden of taxation or regulation, the quality of government, legal enforcement, corruption, etc.) that create such incentives. In this paper the authors highlight another factor – the level of banking development – as a determinant of the shadow economy.

Details

Journal of Economic Studies, vol. 39 no. 6
Type: Research Article
ISSN: 0144-3585

Keywords

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