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Shadow Banking in a Crisis: Evidence from Fintech During COVID-19

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  • Bao, Zhengyang
  • Huang, Difang

Abstract

We analyze lending by traditional as well as fintech lenders during COVID-19. Comparing samples of fintech and bank loan records across the outbreak, we find that fintech companies are more likely to expand credit access to new and financially constrained borrowers after the start of the pandemic. However, this increased credit provision may not be sustainable; the delinquency rate of fintech loans triples after the outbreak, but there is no significant change in the delinquency of bank loans. Borrowers holding both loan types prioritize the payment of bank loans. These results shed light on the benefits provided by shadow banking in a crisis and hint at the potential fragility of such institutions when delinquency rates spike.

Suggested Citation

  • Bao, Zhengyang & Huang, Difang, 2021. "Shadow Banking in a Crisis: Evidence from Fintech During COVID-19," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 56(7), pages 2320-2355, November.
    • Handle: RePEc:cup:jfinqa:v:56:y:2021:i:7:p:2320-2355_2
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    Cited by:

    1. Massimo Preziuso & Franziska Koefer & Michel Ehrenhard, 2023. "Open banking and inclusive finance in the European Union: perspectives from the Dutch stakeholder ecosystem," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 9(1), pages 1-27, December.
    2. Yu, Deshui & Huang, Difang, 2023. "Cross-sectional uncertainty and expected stock returns," Journal of Empirical Finance, Elsevier, vol. 72(C), pages 321-340.
    3. Wang, Jiaxin & Huang, Xiang & Gu, Qiankun & Song, Zilong & Sun, Ruiyi, 2023. "How does fintech affect bank risk? A perspective based on financialized transfer of government implicit debt risk," Economic Modelling, Elsevier, vol. 128(C).
    4. Itzhak Ben-David & Mark J. Johnson & René M. Stulz, 2021. "Why Did Small Business FinTech Lending Dry Up During the COVID-19 Crisis?," NBER Working Papers 29205, National Bureau of Economic Research, Inc.
    5. Huang, Yiping & Li, Xiang & Qiu, Han & Yu, Changhua, 2023. "BigTech credit and monetary policy transmission: Micro-level evidence from China," IWH Discussion Papers 18/2022, Halle Institute for Economic Research (IWH), revised 2023.
    6. Nan Li & Muzi Chen & Difang Huang, 2022. "How Do Logistics Disruptions Affect Rural Households? Evidence from COVID-19 in China," Sustainability, MDPI, vol. 15(1), pages 1-17, December.
    7. Luo, Sumei & Sun, Yongkun & Yang, Fan & Zhou, Guangyou, 2022. "Does fintech innovation promote enterprise transformation? Evidence from China," Technology in Society, Elsevier, vol. 68(C).
    8. Boyao Wu & Difang Huang & Muzi Chen, 2023. "Estimating contagion mechanism in global equity market with time‐zone effect," Financial Management, Financial Management Association International, vol. 52(3), pages 543-572, September.
    9. Ling, Aifan & Huang, Xinrui & Ling, Boya (Vivye), 2022. "Fund immunity to the COVID-19 pandemic: Evidence from Chinese equity funds," The North American Journal of Economics and Finance, Elsevier, vol. 63(C).
    10. Cheng, Aijun, 2023. "Evaluating Fintech industry's risks: A preliminary analysis based on CRISP-DM framework," Finance Research Letters, Elsevier, vol. 55(PB).
    11. Conceição Gomes & Filipa Campos & Cátia Malheiros & Luís Lima Santos, 2023. "Restaurants’ Solvency in Portugal during COVID-19," IJFS, MDPI, vol. 11(2), pages 1-16, April.
    12. Jacek Adamek & Ma³gorzata Solarz, 2023. "Adoption factors in digital lending services offered by FinTech lenders," Oeconomia Copernicana, Institute of Economic Research, vol. 14(1), pages 169-212, March.
    13. Linn Arnell & Emma Engström & Gazi Salah Uddin & Md. Bokhtiar Hasan & Sang Hoon Kang, 2023. "Volatility spillovers, structural breaks and uncertainty in technology sector markets," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 9(1), pages 1-31, December.
    14. Tut, Daniel, 2023. "FinTech and the COVID-19 pandemic: Evidence from electronic payment systems," Emerging Markets Review, Elsevier, vol. 54(C).
    15. Yuting Tu & Xin Yan & Huan Wang, 2023. "Game Theory Analysis of Chinese DC/EP Loan and Internet Loan Models in the Context of Regulatory Goals," Sustainability, MDPI, vol. 15(9), pages 1-15, April.
    16. Fang, Yi & Wang, Qi & Wang, Fan & Zhao, Yang, 2023. "Bank fintech, liquidity creation, and risk-taking: Evidence from China," Economic Modelling, Elsevier, vol. 127(C).
    17. Brandon Goldstein & Julapa Jagtiani & Catharine Lemieux, 2023. "Did Fintech Loans Default More During the COVID-19 Pandemic? Were Fintech Firms “Cream-Skimming” the Best Borrowers?," Working Papers 23-26, Federal Reserve Bank of Philadelphia.
    18. Yu, Deshui & Huang, Difang & Chen, Li & Li, Luyang, 2023. "Forecasting dividend growth: The role of adjusted earnings yield," Economic Modelling, Elsevier, vol. 120(C).

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