Shadow banking, macroprudential policy and banks’ systemic risk

This paper examines the influence of shadow banking on systemic risk using quarterly data on 34 Chinese listed banks from 2009 to 2022. We find that banks involved in shadow banking increase bank-specific tail risk and systemic linkage, thereby amplifying systemic risk. Heterogeneity test results show that national banks involved in shadow banking significantly increase bank-specific tail risk, systemic linkage and systemic risk, while regional banks decrease bank-specific tail risk and systemic risk. Policy effect analysis suggests that implementation of macroprudential policies reduce bank-specific tail risk and systemic risk caused by shadow banking, while macroprudential policies targeting borrowers would enhance systemic linkage. Despite contractionary monetary policies strengthening systemic linkage, tight quantity-based monetary policies could mitigate the impact of shadow banking on systemic risk, whereas tight price-based monetary policies have the opposite effect. Furthermore, market competition and the New Asset Management Regulations (NAMR) might influence the relationship between shadow banking and systemic risk.