Effects of shadow banking on bank risks from the view of capital adequacy
Abstract This study examines two issues. First, we propose that a bank that engages in shadow banking tends to take considerable risks, and we call this effect the risk taking hypothesis. Second, we examine whether good corporate governance can enhance or mitigate this effect of shadow banking on risk taking. Our sample consists of 59 Chinese banks during 2010 2016. We represent shadow banking with three trust beneficiary rights: financial assets purchased under resale agreements, financial assets available for sale, and investment securities received. Our results support the risk taking hypothesis and the tendency of good governance to significantly reduce the effect of shadow banking on risk taking.
International Review of Economics Finance