Best Laid Plans: Economic Consequences of Shadow Banking Crackdown
Topic: Best Laid Plans: Economic Consequences of Shadow Banking Crackdown
Time & Date: 10:00 -11:00, Monday, March 29, 2021
Speaker: Dr. Bo Jiang
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Zoom Meeting ID: 937-4399-0446
This paper studies the impact of shadow banking regulation on the financial system and the real economy. For identification, I exploit a policy – “New Asset Management Rules'' (NAMR) – that restricts the issuance of wealth management products (WMPs) used to support the shadow banking sector in China. I find that investors replace the WMPs with bank deposits after the announcement of NAMR. I further provide evidence banks substitute the shadow banking activities with traditional loans. However, the aggregate credit supply, proxied by interest-bearing assets, declines. This credit supply shock negatively impacts the real economy. Using a bank-firm linked database, I show that firms with high shadow banking or WMP exposure experienced a decline in investments. In addition, the growth rate of total assets, liabilities, and revenues slow down for these firms with high shadow banking or WMP exposure in the post-NAMR era. Using province-level data, I find the aggregate impact of the NAMR is sizable. A counterfactual analysis shows that the investment growth rate would have been 1.6 percentage points higher, translating to 1 percentage point higher GDP growth rate in 2018.
Bo Jiang is a Ph.D. Candidate in the department of economics, George Washington University. He received his B.S. from Shanghai University of Science and Technology and Master from Fudan University. His work has been presented in the Econometric Society European Meeting and Annual Macro and Law Conference at Yale law school. His research interests include financial institutions, financial regulations, and causal inference.