Shadow banking, macroprudential policy, and bank stability: Evidence from China’s wealth management product market

Alice Y. Ouyang and Jifan Wang

Journal of Asian Economics, 2022, vol. 78, issue C

Abstract: This study examines whether shadow banking activities reduce the stability of 269 commercial banks in China, and if they do, whether a tightening macroprudential policy could mitigate this negative effect. A quarterly bank level, unbalanced panel data of wealth management products (WMPs) from 2006 to 2018 measured China’s shadow banking activities. The results show that China’s shadow banking activities weaken the stability of banks, especially for principal-floating WMPs, long-term WMPs, and WMPs issued to individual investors. China’s macroprudential supervision improves the soundness of banks and eases the negative effects of shadow banking on banking stability. Our results suggest the necessity to design specific macroprudential policies based on different kinds of shadow banking activities and different types of banks.

Keywords: Shadow banking; Wealth management products; Macroprudential policies; Banking stability (search for similar items in EconPapers)
JEL-codes: E60 G21 G28 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:asieco:v:78:y:2022:i:c:s1049007821001524

DOI: 10.1016/j.asieco.2021.101424

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