Shadow banking, risk-taking and monetary policy in emerging economies: A panel cointegration approach

Zhou, Sheunesu; Tewari, Devi Datt

doi:10.1080/23322039.2019.1636508

Cited by 14 publications

(12 citation statements)

References 23 publications

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“…Additionally and as referred to in paragraph 6.3, the LCR and a stringent enforcement on risk appetite might lead to an increase in shadow banking. The link between shadow banking and risk appetite is confirmed by academics, such as Zhou and Tewari (2019). They argue that a decrease in interest rates and an increase in risk appetite in the banking sector increases the volume of assets in shadow banking.…”

Section: Unintended Effects and Operational Differences After Implemementioning

confidence: 84%

Liquidity risk regulation and its practical implications for banks: the introduction and effects of the Liquidity Coverage Ratio

Tammenga¹,

Haarman²

2020

MAB

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Following the financial crisis, quantitative liquidity risk regulation was introduced by means of the Liquidity Coverage Ratio (LCR). This literature study aims to investigate whether the introduction of the LCR leads to better liquidity risk management in banks. It elaborates on the drivers and definition of liquidity risk as well as the history, benefits and goals of this regulation. It also delves into the exact composition of the ratio and the assumptions used. The impact on bank lending as well as banks' business model and risk management is addressed, as well as the interaction with monetary policy operations and capital regulation. This paper then describes the operational differences that were observed after the implementation, and behavioral aspects. We also address the Net stable Funding Ratio (NSFR) and the discussion on interaction between the two indicators and possible redundancy. We have found that the introduction of the LCR leads to better management of liquidity risk for most financial institutions, but more harmonious implementation throughout the sector could reduce liquidity risk even further.

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Section: Unintended Effects and Operational Differences After Implemementioning

confidence: 84%

Liquidity risk regulation and its practical implications for banks: the introduction and effects of the Liquidity Coverage Ratio

Tammenga¹,

Haarman²

2020

MAB

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“…Hence, through its mediation role, it hampers the productivity and stability of various industries. For instance, Zhau and Tewari [28] projected that high instability and corruption promote the shadow economy which eventually increases banking risk and instability in emerging countries. However, some studies have concluded that the shadow economy creates employment opportunities for the unemployed and helps in controlling poverty [24].…”

Section: Digital Finance Financial Inclusion and Shadow Economymentioning

confidence: 99%

Assessing the Role of Digital Finance on Shadow Economy and Financial Instability: An Empirical Analysis of Selected South Asian Countries

et al. 2021

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The advancement in fintech technological development in emerging countries has accelerated the role of digital finance in economic development. Digital finance assists in financial inclusion; however, it may also increase the chances of financial instability due to systematic risks. Emerging countries are also in the clutches of shadow economic growth, which reduces taxable income revenue and creates pressure on financial inclusion prospects. The current study attempts to measure the impact of digital finance on the shadow economic growth and financial stability among the selected South Asian emerging countries. We have used the CUP-FM and CUP-BC estimation methods to measure the above relationship on two model frameworks from 2004 to 2018, with the former measuring the influence of digital finance on the shadow economy and the latter examining the relationship between digital finance and financial stability. In addition, the second-generation unit root test, and the Westerlund cointegration analysis are also employed to confirm the stationarity and cointegration among the variables. The result of the Westerlund’s cointegration confirms a long cointegration between the explanatory and outcome variables. Furthermore, the long-run estimation results conclude that an increase in digital finance helps in reducing the growth of the shadow economy among the selected sample countries. However, it also increases the likelihood of systematic risks and increases financial instability. The study also reveals that the control variables like unemployment and industrial productivity also have a significant influence on financial stability and the shadow economy. The findings will assist readers in comprehending how digital finance influences the shadow economy and promotes financial inclusion and stability in emerging nations.

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“…Empirical studies surveyed include those focusing on the linkages between monetary policy and the financial sector through both the risk taking channel and the non-bank financial sector (Nelson et al, 2018, Chen et al, 2017, Borio and Zhu, 2012, Zhou and Tewari, 2019b, Xiao, 2018. Xiao (2018)'s work documents a shadow banking channel of monetary policy for the US.…”

Section: Literature Reviewmentioning

confidence: 99%

“…In addition, the role of shadow banks in risk taking has also been investigated (Zhou and Tewari, 2019b). The risk taking channel of monetary policy describes the response of economic agents to changes in the policy rate by increasing or decreasing their uptake of risky assets (Borio and Zhu, 2012).…”

Section: Introductionmentioning

confidence: 99%

Shadow Banking, Bank Liquidity and Monetary Policy Shocks in Emerging Countries: A Panel VAR Approach

Zhou¹

2020

JEBS

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The study provides an analysis of the relationships between monetary policy, shadow banking and bank liquidity in emerging market economies. It is aimed at broadening knowledge on the effect of shadow banking on monetary policy transmission. Furthermore, the study seeks to analyze the impact of changes in bank liquidity on the growth of the shadow banking sector. We employ panel VAR technique to analyse the dynamics of monetary policy, shadow banking and bank liquidity using data for 15 emerging economy countries. A contractionary monetary policy shock results in a decrease in shadow banking and a decrease in bank liquidity. We also find that a positive shock in bank liquidity increases shadow bank growth and a positive shock in shadow banking also increases bank liquidity. The results point to complementarity between shadow banking and bank liquidity; and the interconnectedness between the two markets in emerging economies. We suggest continuous monitoring of shadow banking activities to minimize transmission of risk from the shadow banking system into the banking sector.

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Shadow banking, risk-taking and monetary policy in emerging economies: A panel cointegration approach

Cited by 14 publications

References 23 publications

Liquidity risk regulation and its practical implications for banks: the introduction and effects of the Liquidity Coverage Ratio

Liquidity risk regulation and its practical implications for banks: the introduction and effects of the Liquidity Coverage Ratio

Assessing the Role of Digital Finance on Shadow Economy and Financial Instability: An Empirical Analysis of Selected South Asian Countries

Shadow Banking, Bank Liquidity and Monetary Policy Shocks in Emerging Countries: A Panel VAR Approach

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