Job Market Talk with Bo Jiang

Practice job market talk with Bo Jiang

Abstract: This paper studies the impact of shadow banking regulation on the financial system and the real economy. For identification, I exploit a policy – “New Asset Management Rules” (NAMR) – that restricts the issuance of wealth management products (WMPs) used to support the shadow banking sector in China. I find that investors replace the WMPs with bank deposits after the announcement of NAMR. I further provide evidence banks substitute the shadow banking activities with traditional loans. However, the aggregate credit supply, proxied by interest-bearing assets, declines. This credit supply shock negatively impacts the real economy. Using a bank-firm linked database, I show that firms with high shadow banking or WMP exposure experienced a decline of investments. In addition, the growth rate of total assets, liabilities, and revenues slow down for these firms with high shadow banking or WMP exposure in the post-NAMR era. Using province-level data, I find the aggregate impact of the NAMR is sizable. A counterfactual analysis shows that the investment growth rate would have been 1.6 percentage points higher, translating to 1 percentage point higher GDP growth rate in 2018.          

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