scholarly journals How does monetary policy respond to the dynamics of the shadow banking sector?

2020 ◽  
Vol 25 (2) ◽  
pp. 228-247
Author(s):  
Luca Agnello ◽  
Vitor Castro ◽  
Fredj Jawadi ◽  
Ricardo M. Sousa
Keyword(s):  
Monetary Policy ◽  
Banking Sector ◽  
Shadow Banking

scholarly journals Monetary Transmission through Shadow Banks

2019 ◽  
Vol 33 (6) ◽  
pp. 2379-2420 ◽  
Author(s):  
Kairong Xiao
Keyword(s):  
Monetary Policy ◽  
Banking Sector ◽  
Structural Model ◽  
Shadow Banking ◽  
Oxford University ◽  
Shadow Banks ◽  
Bank Deposits ◽  
The Difference ◽  
Pass Through ◽  
The Impact

Abstract I find that shadow bank money creation significantly expands during monetary-tightening cycles. This “shadow banking channel” offsets reductions in commercial bank deposits and dampens the impact of monetary policy. Using a structural model of bank competition, I show that the difference in depositor clienteles quantitatively explains banks’ different responses to monetary policy. Facing a more yield-sensitive clientele, shadow banks are more likely to pass through rate hikes to depositors, thereby attracting more deposits when the Federal Reserve raises rates. My results suggest that monetary tightening could unintentionally increase financial fragility by driving deposits into the uninsured shadow banking sector. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

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

2020 ◽  
Vol 11 (6(J)) ◽  
pp. 52-65
Author(s):  
Sheunesu Zhou
Keyword(s):  
Monetary Policy ◽  
Banking Sector ◽  
Emerging Market ◽  
Banking System ◽  
Shadow Banking ◽  
Panel Var ◽  
Shadow Banking System ◽  
Monetary Policy Shock ◽  
Positive Shock ◽  
The Impact

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.

scholarly journals Shadow banks and the risk-taking channel of monetary policy transmission in the euro area

2020 ◽  
Vol 0 (0) ◽  
Author(s):  
Arina Wischnewsky ◽  
Matthias Neuenkirch
Keyword(s):  
Monetary Policy ◽  
Euro Area ◽  
Risk Taking ◽  
Banking Sector ◽  
Shadow Banking ◽  
Monetary Policy Transmission ◽  
Monetary Policy Shocks ◽  
Shadow Banks ◽  
Policy Transmission ◽  
Policy Shocks

AbstractWe provide evidence for a risk-taking channel of monetary policy transmission in the euro area that works through an increase in shadow banks’ total asset growth and their risk assets ratio. Our dataset covers the period 2000Q1–2018Q3 and includes, in addition to the standard variables for real GDP growth, inflation, and the monetary policy stance, the aforementioned two indicators for the shadow banking sector. Based on vector autoregressive models for the euro area as a whole, we find a portfolio reallocation effect towards riskier assets and evidence for a general expansion of assets. Both effects last for roughly six quarters in the case of conventional monetary policy shocks, whereas for unconventional monetary policy shocks the responses are significant for two quarters only. Country-specific as well as sector-specific estimations confirm these findings for most of the euro area countries and all non-bank types, but also reveal some heterogeneity in the reaction of financial institutions.

DHFL Meltdown: The Corporate Governance Lapses

2021 ◽  
pp. 097282012199882
Author(s):  
Daitri Tiwary ◽  
Arunaditya Sahay
Keyword(s):  
Corporate Governance ◽  
Banking Sector ◽  
Housing Finance ◽  
Shadow Banking ◽  
Share Prices ◽  
A Value ◽  
Governance Practices ◽  
The Board Of Directors ◽  
Company Sector ◽  
Financial Company

India’s non-banking financial institutions (NBFIs), broadly constituting the less-regulated shadow banking sector, have been plagued with scams, triggering a domino effect in the Indian money market. Major corporate governance issues were highlighted in NBFIs with the unfurling of the ILF&S fraud; it virtually created a sub-prime crisis. In such a scenario, where the shadow banking sector was subject to change in regulations to ensure vigilance, corporate governance lapses had again led to the meltdown of Kapil Wadhawan led Dewan Housing Finance Limited (DHFL). Registering a net profit growth of 25% in the third quarter of financial year 2017, DHFL was one of India’s leading housing finance companies with a value of whopping ₹1.01 trillion as its asset under management (AUM). The company had nose-dived from its coveted position, suffering a loss of ₹22.23 million for the last quarter of the financial year 2018–2019. The company’s credit ratings of commercial papers and non-convertible debentures were downgraded; non-payment of interests led to enforcement of resolution plan, with the board of directors acceding to nationalized banks. The company’s reputation had crashed with its share prices, amidst allegations of lookout notice issued for its promoters for siphoning funds through shell companies. The case describes the oversights and negligence of DHFL in terms of corporate governance practices in the context of the NBFC (non-banking financial company) sector. The jury is out to evaluate whether Wadhawan had followed the rules of corporate governance in letter and spirit, or the tightening noose of regulations and market sentiments around the ‘shadow banking’ sector of India spelt doom for DHFL.

scholarly journals The Dynamics of Bank Spreads and Financial Structure

2014 ◽  
Vol 04 (04) ◽  
pp. 1450014 ◽  
Author(s):  
Reint Gropp ◽  
Christoffer Kok ◽  
Jung-Duk Lichtenberger
Keyword(s):  
Monetary Policy ◽  
Financial Markets ◽  
Interest Rates ◽  
Banking Sector ◽  
Interest Rate Derivatives ◽  
Developed Markets ◽  
Speed Up ◽  
Pass Through ◽  
Bank Spreads ◽  
Effectiveness Of Monetary Policy

This paper investigates the effect of within banking sector competition and competition from financial markets on the dynamics of the transmission from monetary policy rates to retail bank interest rates in the euro area. We use a new dataset that permits analysis for disaggregated bank products. Using a difference-in-difference approach, we test whether development of financial markets and financial innovation speed up the pass through. We find that more developed markets for equity and corporate bonds result in a faster pass-through for those retail bank products directly competing with these markets. More developed markets for securitized assets and for interest rate derivatives also speed up the transmission. Further, we find relatively strong effects of competition within the banking sector across two different measures of competition. Overall, the evidence supports the idea that developed financial markets and competitive banking systems increase the effectiveness of monetary policy.

China’s shadow banking sector: beneficial or harmful to economic growth?

2015 ◽  
Vol 7 (4) ◽  
pp. 421-445 ◽  
Author(s):  
James R. Barth ◽  
Tong Li ◽  
Wen Shi ◽  
Pei Xu
Keyword(s):  
Economic Growth ◽  
Banking Sector ◽  
Commercial Banking ◽  
Global Perspective ◽  
Shadow Banking ◽  
Content Type ◽  
Wide Range ◽  
Recent Developments ◽  
Major Factors ◽  
Made In

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.

Shadow banking from China's perspective: an empirical analysis of bank-issued wealth management products

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Syed Mehmood Raza Shah ◽  
Qiang Fu ◽  
Ghulam Abbas ◽  
Muhammad Usman Arshad
Keyword(s):  
Commercial Banks ◽  
Fixed Effects ◽  
Banking Sector ◽  
Balance Sheet ◽  
Estimation Method ◽  
Least Square ◽  
Shadow Banking ◽  
Content Type ◽  
Wealth Management ◽  
Chinese Banks

PurposeWealth 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/approachIn 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.FindingsThis 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/implicationsNon-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 implicationsFrom 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/valueThis 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.

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