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Shadow banking shadowed in banks’ balance sheets: Evidence from China’s commercial banks

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  • Feifei Zhu
  • Jing Chen
  • Zihao Chen
  • Huixuan Li

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.

Suggested Citation

  • Feifei Zhu & Jing Chen & Zihao Chen & Huixuan Li, 2019. "Shadow banking shadowed in banks’ balance sheets: Evidence from China’s commercial banks," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 59(5), pages 2879-2903, December.
    • Handle: RePEc:bla:acctfi:v:59:y:2019:i:5:p:2879-2903
    DOI: 10.1111/acfi.12558
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    Cited by:

    1. Zhen Shi & Shijiong Qin & Yung-ho Chiu & Xiaoying Tan & Xiaoli Miao, 2021. "The impact of gross domestic product on the financing and investment efficiency of China’s commercial banks," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 7(1), pages 1-23, December.
    2. Wei, Xin & Liu, Xi & Zhang, Xueyong, 2022. "Shadow banking and the cross-section of stock returns," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 81(C).

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