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ECL model and the development of shadow banking?

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  • Zheng, Tianyu
  • Zhang, Kunpeng
  • Lin, Zhenxing

Abstract

This study investigates the impact of the Expected Credit Loss (ECL) model on commercial banks in China from 2015 to 2021, focusing on both on-balance sheet and off-balance sheet shadow banking activities. The research explores whether the ECL model results in spillover governance effects or encourages regulatory arbitrage behavior. The findings indicate that following the implementation of the ECL model, banks decreased the proportion of on-balance sheet non-standard assets, especially asset-backed securities, due to the model's governance effects. However, under increased profit pressure, banks expanded off-balance sheet non-principal guaranteed financial products to engage in regulatory arbitrage. This study offers theoretical and empirical evidence to support the development of subsequent standards.

Suggested Citation

  • Zheng, Tianyu & Zhang, Kunpeng & Lin, Zhenxing, 2025. "ECL model and the development of shadow banking?," Research in International Business and Finance, Elsevier, vol. 80(C).
    • Handle: RePEc:eee:riibaf:v:80:y:2025:i:c:s0275531925003654
    DOI: 10.1016/j.ribaf.2025.103109
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    References listed on IDEAS

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