 Nonbank financial institutions and financial stability: Time series analysisLicheng Zheng, Xiaoqing Huang and Xiaoyong Lu Finance Research Letters, 2025, vol. 73, issue C Abstract: While the rapid growth of nonbank financial institutions (NBFIs) has transformed financial landscapes globally, their impact on financial stability remains unclear. NBFIs can promote market liquidity and innovation; however, their complex structures may introduce systemic risks. This study employed a vector autoregression model to examine the short- and long-term effects of NBFI expansion on financial stability in China from 2010 to 2020. Findings indicate that financial NBFIs negatively affect financial stability in the short term but exhibit positive effects over the long run; however, nonfinancial NBFIs exhibit consistent negative effects. Variance decomposition suggests a lagged effect of NBFI expansion on financial stability, which becomes more pronounced in the medium to long term. These findings underscore the need for nuanced, forward-looking regulatory approaches to balance NBFI growth with financial system resilience for a comprehensive understanding of evolving financial ecosystems. Keywords: Nonbank financial institution; Financial stability; Time series analysis; Vector autoregression; Systemic risk (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:73:y:2025:i:c:s1544612324015733 DOI: 10.1016/j.frl.2024.106544 Access Statistics for this article Finance Research Letters is currently edited by R. Gençay More articles in Finance Research Letters from Elsevier |
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