Title: Benefits and Risks of Shadow Money: Evidence from the Chinese WMP Market

Abstract:
We study banking competition in the presence of shadow money. Investors can choose between insured deposits and uninsured off-balance sheet shadow money. Banks compete for investors by setting corresponding interest rates and default endogenously. We calibrate our model to Chinese banking sector data using wealth management products (WMPs) as proxies for shadow money. Implicit guarantees inherent in WMPs incentivize banks to issue more shadow money. The resulting supply of credit boosts economic growth but also builds up financial fragility that potentially hampers the economy. Multiple equilibria emerge that may lead to severe financial distress with large welfare losses.
Lecturer: Dr. Yajun Xiao
Date/Time: 14th June, 2019  14:30 – 16:30
Location: Room 702, CEM Building, Jiangjun Rd. Campus
Brief introduction of the lecturer:
Dr Yajun Xiao obtained his Ph.D in Finance from the Geothe University Frankfurt and Diplom (master equiv.) in Mathematics from University of Kaiserslautern. He completed his undergraduate study in Tongji University, China. Prior to joining UCD, Yajun was a lecturer in Finance at the University of Technology, Sydney and a postdoc at the University of Freiburg. Yajun research interests are in capital structure and maturity mismatch arising from corporate financing, systmic risk in banking system, asset pricing with market frictions. His research also focuses on other topics in quantitative finance. He has published papers in Review of Finance, European Financial Management, Advances in Applied Probability and Quantitative Finance, etc.