This Thing of Social Media!

This chapter is about social media and its networking platforms and how they can run or develop a business in the financial sector. As a platform economy, this sector ranges from shadow banks such as mutual funds, leasing companies, brokers, and credit insurance companies to other money market mutual funds. Nevertheless, recent studies in this sector have only focused on the money market, thus creating a vacuum of how social media can run or develop the banking sector through this platform. The social media platform has transformed drastically from being a place for just interaction to buying and selling, forcing many businesses to register on one or two of these media to take advantage of the ever-growing market potentials they offer. However, it also comes with its challenges. This chapter highlights how to manage this medium for a successful business. The study collected data online from bank clients who ever used this platform to transact financial business.

Discretionary Effort on Green Technology Innovation: How Chinese Enterprises Act when Facing Financing Constraints

Firm’s effort on Green technology innovation (hereafter, called G-innovation) is affected by financing constraints, and firm will make a discretionary choice according to its own situation, to achieve the maximization of self-interests. Based on the data of Chinese micro enterprises, firstly, we empirically analyze firms’ decision-making towards G-innovation when faced with financing constraints. It supports the view that financing constraints can hinder enterprise technological innovation. And we also make an explanation that the social benefits of green technology innovation are greater than personal benefits, which makes enterprises tend to reduce green technology innovation when facing financing constraints. Then we examine firms’ heterogonous behaviors under different internal attributes and external environments. The results reveal that: First, firms are reluctant to pay more efforts to G-innovation when faced with increased financing constraints. Second, firms with different attributes exhibit heterogeneous G-innovation. Political connections will change firms’ willingness to innovate, while the structure of property rights and the pollution degree will not. Third, firms under different external environment also exhibit heterogeneous G-innovation. When economic policy uncertainty increases, firms’ willingness to innovate weakens. The development of shadow banks fail to improve firm’s willingness to innovate.

Oh, How the Mighty Have Fallen: The Bank Failures and Near Failures That Started America’s Greatest Financial Panics

This paper examines the failures or in some cases near-failures of financial institutions that started the 12 most severe peacetime financial panics in the United States, beginning with the Panic of 1819 and ending with the Panic of 2008. The following generalizations were true in most cases, although not in all. (1) Panics were triggered by a short series of failures or near-failures; (2) many of the failing institutions were what we would now call shadow banks; (3) typically, the source of trouble was an excessive investment in real estate; and (4) typically, they had outstanding reputations for trustworthiness, prudence, and financial acumen—before they failed. It appears that in these respects the Panic of 2008 was an old-school panic.[a panic] occurs when a succession of unexpected failures has created in the mercantile, and sometimes also in the non-mercantile public a general distrust in each other’s solvency; disposing every one not only to refuse fresh credit, except on very onerous terms, but to call in, if possible all credit which he has already given.—John Stuart MillAll of this has happened before, and it will all happen again.—Peter Pan

Uncertainty and the Shadow Banking Crisis: Estimates from a Dynamic Model

Shadow banks play an important role in the modern financial system and are arguably the source of key vulnerabilities that led to the 2007–2009 financial crisis. I develop a quantitative framework with uncertainty fluctuations and endogenous bank default to study the dynamics of shadow banking. I argue that the increase in asset return uncertainty during the crisis results in a spread spike, making it more costly for shadow banks to roll over their debt in the short-term debt market. As a result, these financial institutions are forced to deleverage, leading to a decrease in credit intermediation. The model is estimated using a bank-level data set of shadow banks in the United States. The parameter estimates imply that uncertainty shocks can explain 72% of asset contraction and 70% of deleveraging in the shadow banking sector. Maturity mismatch and asset fire-sales amplify the impact of the uncertainty shocks. First-moment shocks to bank asset return, financial shocks, or fire-sale cost shocks alone cannot reproduce the large interbank spread spike, dramatic deleveraging, or contraction in the U.S. shadow banking sector during the crisis. The model also allows for policy experiments. I analyze how unconventional monetary policies can help to counter the rise in the interbank spread, thus stabilizing the credit supply. Taking bank moral hazard into consideration, I find that government bailout might be counterproductive as it might result in more aggressive risk-taking among shadow banks, especially when bailout decisions are based on bank characteristics. This paper was accepted by Gustavo Manso, finance.

Profiting on Crisis: How Predatory Financial Investors Have Worsened Inequality in the Coronavirus Crisis

A once-in-a-century pandemic has sparked an unprecedented health and economic crisis. Less examined is how predatory financial investors have shaped the crisis and profited from it. We examine how U.S. shadow banks, such as private equity, venture capital, and hedge fund firms, have affected hardship and inequality during the crisis. First, we identify how these investors helped to hollow out the health care industry and disenfranchise the low-wage service sector, putting frontline workers at risk. We then outline how, as the downturn unfolds, shadow banks are shifting their investments in ways that profit on the misfortunes of frontline workers, vulnerable populations, and distressed industries. After the pandemic subsides and governments withdraw stimulus support, employment will likely remain insecure, many renters will face evictions, and entire economic sectors will need to rebuild. Shadow banks are planning accordingly to profit from the fallout of the crisis. We argue that this case reveals how financial investors accumulate capital through private and speculative investments that exploit vulnerabilities in the economic system during a time of crisis. To conclude, we consider the prospects for change and inequality over time.

Risks’ cross-contagion between shadow banks based on complex network theory: evidence from China

Purpose The purpose of this paper is to analyze the network path and internal mechanism of risks’ cross-contagion between shadow banks and design strategies for preventing risk infection between shadow banks. Design/methodology/approach Using the complex network theory, analyze the mechanism of risks’ cross-contagion between shadow banks from the credit network, business relationship network (BRN) and social network (SN); the cross-contagion mechanism using the structural equation model on the basis of China’s shadow banks is tested; based on the three risk infection paths, the prevention and control strategies for risk infection using the mathematical models of epidemic diseases are designed. Findings There are three network risk contagion paths between shadow banks. One, the credit network, risks are infected crossly mainly through debt and equity relationships; two, the BRN, risks are infected crossly mainly through business network and macro policy transmission; three, investor SN, risks are infected crossly mainly through individual SN and fractal relationships. The following three strategies for preventing risk’s cross-contagion between shadow banks: one, the in advance preventing strategy is more effective than the ex post control strategy; two, increasing the risk management coefficient; three, reducing the number of risk-infected submarkets. Originality/value The research of this study, especially the strategies for preventing the risks’ cross-contagion, could provide theoretical and practical guidance for regulatory authorities in formulating risk supervision measures.

Trends, Events, and Centres, 1970–92

It is always difficult to disentangle the effects of trends from that of events when making judgements about the causes of long-term development. Evidence drawn from contemporary observers magnifies the significance of events, as they had no means of judging long-term consequences. Reliance on later commentators minimizes the importance of an event leading to a conclusion of inevitability. This can be seen most clearly when examining financial centres with prominence given to the survivors, like London and New York, while others are ignored despite their past importance. Even before the 1970s fundamental forces were driving change in global financial markets, especially globalization and the technology of communications and trading. In the face of these governments struggled to maintain the controls and compartmentalization introduced after the Second World War, faced with the rise of offshore financial centres, alternative financial markets, and shadow banks. In the 1970s it proved impossible to resist these forces leading to the beginning of a transformation of global financial markets in the 1980s, led by developments in New York, Chicago, and London