Shadow Banking, Macroprudential Policy, and Bank Stability: Evidence from China’s Wealth Management Product Market

2021 ◽  
pp. 101424
Author(s):  
Alice Y. Ouyang ◽  
Jifan Wang
Keyword(s):  
Product Market ◽  
Shadow Banking ◽  
Macroprudential Policy ◽  
Bank Stability ◽  
Wealth Management

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.

scholarly journals Macroprudential policy debate, concepts and the Brazilian context

2018 ◽  
Vol 4 (1) ◽  
pp. 35
Author(s):  
Míriam Oliveira Silva Portugues ◽  
Viviane Luporini ◽  
Luis Antonio Licha
Keyword(s):  
Financial Stability ◽  
Banking System ◽  
Financial System ◽  
International Standards ◽  
Capital Inflows ◽  
Shadow Banking ◽  
Policy Debate ◽  
Macroprudential Policy ◽  
Intrinsic Nature ◽  
Economics Literature

<div class="page" title="Page 1"><div class="layoutArea"><div class="column"><p><span>The economics literature related to the financial system seeks to define the concepts of financial stability, systemic risk and macroprudential instruments for the purpose of drafting a policy that essentially "leans against the wind", that is, a policy that monitors macroeconomic vulnerabilities and combats system instability. Such a policy should cover all financial institutions involved in credit intermediation (not just banks) and consider the pro-cyclical and intrinsic nature of risk in the financial system, and account for the spillovers effects of policies in other countries, that is, the global context. This article summarizes the main concepts related to macroprudential policy discussed in the economics literature after the crisis the 2008 financial crisis. In addition, we describe macroprudential policy in the context of the Brazilian financial system, specifically major policies implemented in the banking regulatory environment related to Basel III and non-bank regulations related to shadow banks. After the 2008 crisis, Brazil was one of the precursors countries in operating macroprudential instruments to curb excessive credit growth and strong capital inflows. The Brazilian financial system has a broad regulatory perimeter, adhering to international standards and covering the Shadow banking system. This system has a weak connection with the banking system and is small relative to the financial assets of the national and global systems. </span></p></div></div></div>

scholarly journals Macroprudential Regulation versus mopping up after the crash

2020 ◽  
Vol 87 (3) ◽  
pp. 1470-1497 ◽  
Author(s):  
Olivier Jeanne ◽  
Anton Korinek
Keyword(s):  
Financial Crises ◽  
Shadow Banking ◽  
Macroprudential Policy ◽  
Second Best ◽  
Macroprudential Regulation ◽  
Liquidity Provision ◽  
Incentive Effects ◽  
Ex Post ◽  
Ex Ante ◽  
Banking Risk

Abstract How should macroprudential policy be designed when policymakers also have access to liquidity provision tools to manage crises? We show in a tractable model of systemic banking risk that there are three factors at play: first, ex post liquidity provision mitigates financial crises, and this reduces the need for macroprudential policy. In the extreme, if liquidity provision is untargeted and costless or if it completely forestalls crises by credible out-of-equilibrium lending-of-last-resort, there is no role left for macroprudential regulation. Second, however, macroprudential policy needs to consider the ex ante incentive effects of targeted liquidity provision. Third, if shadow banking reduces the effectiveness of macroprudential instruments, it is optimal to commit to less generous liquidity provision as a second-best substitute for macroprudential policy.

scholarly journals BANK CONCENTRATION AND BANKING STABILITY: EVIDENCE FROM EAGLE GROUP

2021 ◽  
Vol 19 (4) ◽  
pp. 703-714
Author(s):  
Le Dinh Hac ◽  
Keyword(s):  
Banking System ◽  
Policy Instruments ◽  
Macroprudential Policy ◽  
Bank Stability ◽  
Macroeconomic Factors ◽  
Data Limitations ◽  
Equity Ratio ◽  
Banking Stability ◽  
The Impact

The study was conducted to assess the impact of the banking sector's concentration on the banking system's stability in Emerging and growth-leading economies (EAGLEs). In addition, the study also analyzed the role of macroeconomic factors in bank stability. By applying Bayesian multivariate linear regression, the posterior probability results show that money supply growth and credit growth erode the soundness of the banking system. On the other hand, economic growth helps to improve banking stability, but this effect is not obvious; surprisingly, inflation also increases the banking stability of the Emerging and growth-leading economies. Finally, the study shows that the equity ratio to total assets has a reverse relationship with bank stability. Due to data limitations, this study has not yet examined the role of macroprudential policy instruments in maintaining banking stability. Hence, in future studies, besides the factors considered in this study, we should focus on analyzing the impact of macroprudential policy instruments on banking stability.

Interaction between wealth management products and bank deposits: evidence from China's shadow banking

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Syed Mehmood Raza Shah ◽  
Yan Lu ◽  
Qiang Fu ◽  
Muhammad Ishfaq ◽  
Ghulam Abbas
Keyword(s):  
Interest Rates ◽  
Banking Sector ◽  
Balance Sheet ◽  
Shadow Banking ◽  
Cross Sectional ◽  
Content Type ◽  
Wealth Management ◽  
Panel Ardl ◽  
Bank Deposits ◽  
Long Run

PurposeShadow 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/approachThis 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).FindingsUnder 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/implicationsThe 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 implicationsThis 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/valueThis 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.

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