Chinese Shadow Banking: Bank-Centric Misperceptions

HKIMR Working Paper No. 22/2014

40 Pages Posted: 13 Sep 2014

See all articles by Tri Vi Dang

Tri Vi Dang

Columbia University - Department of Economics

Honglin Wang

Hong Kong Monetary Authority - Hong Kong Institute for Monetary Research (HKIMR)

Aidan Yao

Hong Kong Monetary Authority

Date Written: September 12, 2014

Abstract

In this paper, we provide a qualitative and theoretical framework to analyze the rapid growth of shadow banking in China. An important characteristic of the system is its close connection with traditional banks, making it very bank-centric. Our theoretical model employs the concept of “information sensitivity” – a measure of tail risks – by Dang, Gorton and Holmstrom (2013) and suggests that Chinese shadow banking is built on the asymmetric perception of information sensitivity among shadow banking entities, banks and investors. Compared to the US, we show that shadow banking in China is built on different mechanisms (implicit guarantees in China versus financial engineering in the US) and operates on different platforms (banks versus capital markets).

Suggested Citation

Dang, Tri Vi and Wang, Honglin and Yao, Aidan, Chinese Shadow Banking: Bank-Centric Misperceptions (September 12, 2014). HKIMR Working Paper No. 22/2014. Available at SSRN: https://ssrn.com/abstract=2495197 or http://dx.doi.org/10.2139/ssrn.2495197

Tri Vi Dang

Columbia University - Department of Economics ( email )

420 West 118th Street
New York, NY 10027
United States

Honglin Wang (Contact Author)

Hong Kong Monetary Authority - Hong Kong Institute for Monetary Research (HKIMR) ( email )

3 Garden Road, 8th Floor
Hong Kong
China

Aidan Yao

Hong Kong Monetary Authority ( email )

3 Garden Road, 30th Floor
Hong Kong
Hong Kong

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