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- Title
The Risk of Implicit Guarantees: Evidence from Shadow Banks in China*.
- Authors
Huang, Ji; Huang, Zongbo; Shao, Xiang
- Abstract
We study how risks spill over from shadow banking activities to traditional banks through implicit guarantees. Using data on wealth management products (WMPs), China's largest shadow banking component, we find that banks with higher interbank borrowing rates strategically provide stronger implicit guarantees to their issued WMPs. Extending implicit guarantees builds bank reputations and reduces rollover costs while exposing banks to losses from shadow banking activities. Our findings thus suggest a bank-specific approach to assessing the risk of implicit guarantees based on transparent and real-time interbank rates.
- Subjects
CHINA; SHADOW banking system; NONBANK financial institutions; PRODUCT management software; INTEREST rates; BANKING industry; WEALTH management services
- Publication
Review of Finance, 2023, Vol 27, Issue 4, p1521
- ISSN
1572-3097
- Publication type
Article
- DOI
10.1093/rof/rfac061