IDEAS home Printed from https://ideas.repec.org/a/eee/finlet/v73y2025ics1544612324015733.html
   My bibliography  Save this article

Nonbank financial institutions and financial stability: Time series analysis

Author

Listed:
  • Zheng, Licheng
  • Huang, Xiaoqing
  • Lu, Xiaoyong

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.

Suggested Citation

  • Zheng, Licheng & Huang, Xiaoqing & Lu, Xiaoyong, 2025. "Nonbank financial institutions and financial stability: Time series analysis," Finance Research Letters, Elsevier, vol. 73(C).
    • Handle: RePEc:eee:finlet:v:73:y:2025:i:c:s1544612324015733
    DOI: 10.1016/j.frl.2024.106544
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1544612324015733
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.frl.2024.106544?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Constantin-Marius Apostoaie & Irina Bilan, 2020. "Macro determinants of shadow banking in Central and Eastern European countries," Economic Research-Ekonomska Istraživanja, Taylor & Francis Journals, vol. 33(1), pages 1146-1171, January.
    2. Allen, Franklin & Qian, Yiming & Tu, Guoqian & Yu, Frank, 2019. "Entrusted loans: A close look at China's shadow banking system," Journal of Financial Economics, Elsevier, vol. 133(1), pages 18-41.
    3. Leandro Maciel, 2019. "Financial interval time series modelling and forecasting using threshold autoregressive models," International Journal of Business Innovation and Research, Inderscience Enterprises Ltd, vol. 19(3), pages 285-303.
    4. Imdad Ali Khowaja & Urooj Talpur & Sikander Hussain Soomro & Muhammad Shoaib Khan, 2021. "The non-banking financial institutions in perspective of economic growth of Pakistan," Applied Economics Letters, Taylor & Francis Journals, vol. 28(8), pages 701-706, May.
    5. Alper Aslan & Onur Gozbasi & Buket Altinoz & Mehmet Altuntas, 2021. "Impact of financial development and economic growth on energy consumption: A panel vector autoregressive analysis for the comparison of G7 and top 10 emerging market economies," Energy & Environment, , vol. 32(7), pages 1315-1330, November.
    6. Sulkhan Chavleishvili & Simone Manganelli, 2024. "Forecasting and stress testing with quantile vector autoregression," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 39(1), pages 66-85, January.
    7. Joanna Hanna Buha & Dmytro Yevenko & Vitalii Pastushenko, 2023. "Concept And Classification Of Non-Banking Financial Institutions," Baltic Journal of Economic Studies, Publishing house "Baltija Publishing", vol. 9(1).
    8. Liton Chandro Sarkar, 2022. "Empirical Assessment on the Impact of Leverage and Capital Adequacy on Performance of Non-Bank Financial Institutions in Bangladesh," Athens Journal of Business & Economics, Athens Institute for Education and Research (ATINER), vol. 8(2), pages 159-176, April.
    9. Abu Kalam & Monzurul Islam Utsho, 2020. "Effects of Firm Specific Factors on Profitability of Non Bank Financial Institutions in Bangladesh: Evidenced from Dhaka Stock Exchange (DSE)," International Journal of Science and Business, IJSAB International, vol. 4(11), pages 1-13.
    10. 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.
    11. Mohammad Mizenur Rahman & Syed Mohammad Khaled Rahman & Sakib Ahmed, 2023. "Determinants of efficiency of non-bank financial institutions: an empirical evidence from Bangladesh," Asian Journal of Economics and Banking, Emerald Group Publishing Limited, vol. 7(3), pages 380-396, February.
    12. Zhenwei Li & Jing Han & Yuping Song, 2020. "On the forecasting of high‐frequency financial time series based on ARIMA model improved by deep learning," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 39(7), pages 1081-1097, November.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chen, Ting-Hsuan & Shen, Chung-Hua & Wu, Meng-Wen & Huang, Kuo-Jui, 2021. "Effect of shadow banking on the relation between capital and liquidity creation," International Review of Economics & Finance, Elsevier, vol. 76(C), pages 166-184.
    2. Ma, Yongfan & Hu, Xingcun, 2024. "Shadow banking and SME investment: Evidence from China's new asset management regulations," International Review of Economics & Finance, Elsevier, vol. 93(PA), pages 332-349.
    3. Anderson, Ronald W., 2020. "Who bears risk in China's non-financial enterprise debt?," LSE Research Online Documents on Economics 118879, London School of Economics and Political Science, LSE Library.
    4. Gloria González‐Rivera & C. Vladimir Rodríguez‐Caballero & Esther Ruiz, 2024. "Expecting the unexpected: Stressed scenarios for economic growth," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 39(5), pages 926-942, August.
    5. Falconio, Andrea & Manganelli, Simone, 2025. "Financial conditions, business cycle fluctuations and growth-at-risk," Journal of Economic Dynamics and Control, Elsevier, vol. 176(C).
    6. Hartwig, Benny & Meinerding, Christoph & Schüler, Yves S., 2021. "Identifying indicators of systemic risk," Journal of International Economics, Elsevier, vol. 132(C).
    7. 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).
    8. 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).
    9. Difang Huang & Ying Liang & Boyao Wu & Yanyi Ye, 2025. "Estimating the impact of social distance policy in mitigating COVID-19 spread with factor-based imputation approach," Empirical Economics, Springer, vol. 68(2), pages 585-601, February.
    10. Liu, Xiangsheng & Lv, Lingli, 2023. "The effect of China's low carbon city pilot policy on corporate financialization," Finance Research Letters, Elsevier, vol. 54(C).
    11. Mario Forni & Luca Gambetti & Nicolò Maffei-Faccioli & Luca Sala, 2023. "The impact of financial shocks on the forecast distribution of output and inflation," Working Paper 2023/3, Norges Bank.
    12. Mai Dao & Lam Nguyen, 2025. "Variable selection in macroeconomic stress test: a Bayesian quantile regression approach," Empirical Economics, Springer, vol. 68(3), pages 1113-1169, March.
    13. Yilmaz Bayar & Mehmet Hilmi Ozkaya & Laura Herta & Marius Dan Gavriletea, 2021. "Financial Development, Financial Inclusion and Primary Energy Use: Evidence from the European Union Transition Economies," Energies, MDPI, vol. 14(12), pages 1-14, June.
    14. Faisal Faisal & Aliya Zhakanova Isiksal & Ala Fathi Assi & Adnan Ali & Hamid Ghazi H Sulimany, 2025. "Financial risk, sustainable development, natural resources and green finance: unveiling the shadow economy in the BRICST countries," Mineral Economics, Springer;Raw Materials Group (RMG);Luleå University of Technology, vol. 38(2), pages 397-412, June.
    15. Fan, Rui & Ma, Lijun & Pan, Jianping & Yin, Sirui & Gao, Hao, 2022. "Financial institution shareholding and corporate innovation: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 80(C), pages 835-856.
    16. Yu, Deshui & Huang, Difang & Chen, Li & Li, Luyang, 2023. "Forecasting dividend growth: The role of adjusted earnings yield," Economic Modelling, Elsevier, vol. 120(C).
    17. Vinay Singh & Bhasker Choubey & Stephan Sauer, 2024. "Liquidity forecasting at corporate and subsidiary levels using machine learning," Intelligent Systems in Accounting, Finance and Management, John Wiley & Sons, Ltd., vol. 31(3), September.
    18. Cheng, C.S. Agnes & Hu, Gang & Yu, Danlei Bonnie, 2022. "CAFR 1999–2021, the past two decades and a look ahead," Journal of Financial Stability, Elsevier, vol. 60(C).
    19. Huang, Xiaoyong & Yu, Cong & Chen, Yunping & Jia, Fei & Xu, Xiangyun, 2022. "Rigid payment breaking, default spread and yields of Chinese treasury bonds," The North American Journal of Economics and Finance, Elsevier, vol. 59(C).

    More about this item

    Keywords

    Nonbank financial institution; Financial stability; Time series analysis; Vector autoregression; Systemic risk;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finlet:v:73:y:2025:i:c:s1544612324015733. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/frl .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.