Benefits and Risks of Shadow Money: Evidence from Chinese WMP Market


讲座时间:2018年127日 上午10:00 - 11:30


讲座嘉宾肖亚军University College Dublin



In this paper, we study banking competition in the presence of shadow money. Investors choose between insured deposits and uninsured off-balance sheet shadow money while banks compete for investors in setting the corresponding interest rates and default endogenously. Our approach allows to quantitatively examine the benefits and risks inherent in shadow money across time and states. We calibrate our model to the Chinese banking sector data using wealth management products (WMPs) as proxy for shadow money. Banks value implicit government guarantee that earn premium, which incentives banks to create more shadow money. As a result of supply of credit it boosts economy but it builds up financial fragility that potentially harms economy. Some of the bad equilibria leads to severe financial distress and causes large welfare loss. Further, we show that banks are more fragile if adjusting rates on shadow money is costly and that imposing capital requirements on shadow money is not a viable policy to enhance stability.  


Dr. Yajun Xiao obtained his Ph.D in Finance from the Geothe University Frankfurt and Diploma (master equiv.) in Mathematics from University of Kaiserslautern. He completed his undergraduate study in Tongji University, China. Prior to joining UCD, Yajun was a lecturer in Finance at the University of Technology, Sydney and a postdoc at the University of Freiburg. Yajun research interests are in capital structure and maturity mismatch arising from corporate financing, systemic risk in banking system, asset pricing with market frictions. His research also focuses on other topics in quantitative finance. He has published papers in Review of Finance, European Financial Management, Advances in Applied Probability and Quantitative Finance,etc.