- Shadow Banking in China Compared to Other Countries (with Franklin Allen), June 2020
- FinReg Blog, Duke Law
- China’s shadow banking sector has grown rapidly in the last decade. While bank loans still dominate the financial system as a main source of funding, the shadow banking sector reached 32.9 percent of total social financing by 2016, though it then fell to 24.2% percent by 2019. Households and corporations benefit from the growing shadow banking sector as an alternative funding source; however, it presents concerns to regulators who are charged with maintaining the stability of the financial system. In our recent paper, we suggest that the implicit guarantees from nonbanks, banks, or government to the shadow banking sector might provide a second-best arrangement in funding risky projects in the real economy and improving welfare, without amplifying systemic risks.
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- A Survey of FinTech (with Franklin Allen, Julapa Jagtiani), June 2020
- Machine Lawyering Blog, CUHK Law
- The rapid advance in financial technology (fintech) in recent years has penetrated all areas of the financial system and resulted in dramatic growth of innovations. The vast amount of data collected and monetized, together with the fast and complex computing algorithms, have been the key drives of these innovations. The current COVID-19 pandemic may also lead us to embrace digital and contactless technologies and expedite us toward a cashless economy. While fintech could greatly improve credit access and enhance efficiencies in the financial system, risks cannot be neglected.
- The Unintended Consequences of Regulation: Evidence from China's Interbank Market (with Lu Yun), June 2019
- VoxChina.org
- Financial regulation can have unanticipated consequences in the financial system. The evidence from China’s interbank market shows that banks tend to use newly introduced and lightly regulated financial instruments to get around regulation during their search for funds. Banks facing greater competition or higher liquidity shortages have more incentives to engage in such activities. Such interbank activities are closely associated with banks’ proprietary trading, suggesting the potential risk of financial contagion.
