Finance Seminar（2018-05）

Topic: The Economics of Shadow Banking: Lessons from Surrogate Intermediaries in China

Speaker: Tianyue Ruan, NYU Stern School of Business

Time: Monday, 5 February, 10:00-11:30

Location: Room 217, Guanghua Building 2

Abstract:

The shadow banking sector has grown tremendously in China in the last decade, developing in parallel with the rise of non-bank lenders in western economies. Chinese non-financial firms supply credit in the shadow banking sector, i.e., they behave as “surrogate intermediaries”. Using hand-collected data on the entrusted loans made by listed firms to other firms, this paper analyzes the causes and consequences of this phenomenon. Deposit funding declines and therefore constrains loan growth differentially across banks, as banks have to comply with the 75% loan-to-deposit ratio restriction. Using the pre-determined geographic variation in the presence of constrained banks, I find that entrusted lending is more prevalent and more profitable in cities where traditional bank loans grow slower. Entrusted lenders also appear to use existing cash rather than raise external finance to make the loans. Overall, my results suggest that this segment of shadow banking fills the regulation-induced gap in bank loan supply and is unlikely to undermine financial stability.

Introduction:

Tianyue Ruan is a Ph.D. candidate in NYU Stern School of Business. Her research interests are Financial Intermediation and Regulation, Systemic Risk, Macro-Finance. She holds a B.A. in Economics from Peking University Guanghua School of Management. She holds a M.Phil. in Finance from New York University Stern School of Business.

Your participation is warmly welcomed!