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Shadow banking shadowed in banks’ balance sheets: Evidence from China’s commercial banks
Author(s) -
Zhu Feifei,
Chen Jing,
Chen Zihao,
Li Huixuan
Publication year - 2019
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/acfi.12558
Subject(s) - shadow (psychology) , balance sheet , business , off balance sheet , shock (circulatory) , china , balance (ability) , financial system , capital requirement , economics , monetary economics , finance , medicine , psychology , physical medicine and rehabilitation , political science , law , psychotherapist , microeconomics , incentive
Abstract Using hand‐collected data, we creatively construct an ‘on‐balance‐sheet shadow banking business’ (OBS‐SBB) measure to precisely quantify commercial banks’ shadow banking activity concealed on their balance sheets. We show that OBS‐SBB activities could both increase individual and systemic risks. To further test the underlying mechanisms, we use China’s implementation of Basel III as an exogenous shock and employ the difference‐in‐differences approach. We find that banks demand OBS‐SBB in order to bypass capital requirements, previously less‐capitalised banks significantly increase their OBS‐SBB ex‐post, and greater impact is found among small and medium‐sized banks and during loose monetary policy periods.