Share pledge lending, monetary policy, and shadow banking nexus

Cheng Yan, Yujun Lian, Xiangxiang Xu and Chang-Chih Chen

Pacific-Basin Finance Journal, 2025, vol. 92, issue C

Abstract: We study how monetary policy affects brokers' shadow banking activities in the context of share pledge lending. Using China loan-level data and the quantity-based monetary model of Chen et al. (2018), we find a strong positive association between brokers' share pledge loans and monetary policy shocks. This association is more pronounced among brokers with stronger profit-seeking motives. The broker-borrower relationship helps borrowers get through political shocks and shapes value-destroying collusion. Also, we conduct a difference-in-difference (DiD) test to identify a new broker lending channel of monetary policy — policies for restricting shadow banking significantly curb brokers' lending via share pledge loans, embodying the effectiveness of monetary policy. Our finding reveals the transmission mechanism through which monetary policies intervene shadow banking underlying the share pledge lending market.

Keywords: Shadow banking; Monetary policy shock; Share pledge (search for similar items in EconPapers)
JEL-codes: E4 G2 H7 L2 O1 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:92:y:2025:i:c:s0927538x2500109x

DOI: 10.1016/j.pacfin.2025.102772

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