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Jurnal Ekonomi Malaysia

57 (3) 2023 89 – 102

Institutional Quality, Financial Factors and Shadow Banking

Faculty of Accountancy and Management
Universiti Tunku Abdul Rahman
Bandar Sungai Long
43000 Kajang, Selangor, MALAYSIA.

harwm@utar.edu.my

Faculty of Accountancy and Management
Universiti Tunku Abdul Rahman
Bandar Sungai Long
43000 Kajang, Selangor, MALAYSIA.

chingyee119@gmail.com

Universiti Sains Malaysia
School of Mathematical Sciences
11800 Minden, Penang, MALAYSIA.

sksek@usm.my

Faculty of Accountancy and Management
Universiti Tunku Abdul Rahman
Bandar Sungai Long
43000 Kajang, Selangor, MALAYSIA.

hslee@utar.edu.my

Abstract

This paper aims to examine the relationship between the traditional banking, financial factors, and shadow banking. The financial factors are traditional bank size, household debt and non-performing loan. Using panel data from 2009 to 2019 for 26 countries, the study applied quantile regression to analyze the relationship nexuses across different levels of shadow banking. Findings revealed positive relationships between traditional and shadow banking in all quantiles, implying the Originate-to-Distribute (OTD) model. Household debt and shadow banking produced positive relationships at lower levels of shadow banking but turned negative at higher levels, implying greater agency problem and securitization practice at lower quantiles. We further found positive relationship between non-performing loan and shadow banking. This implies that banks tend to practice reactive risk management. Political governance has positive relationship with shadow banking at all quantiles. Relationship between economic governance and shadow banking was negative at lower quantiles but turned positive at higher quantiles. Of serious concern are the negative findings for institutional governance that imply lower quality of rule of law and higher corruption that play the invisible hand to the growth of shadow banking. This paper calls for targeted regulations on risk transferring and sharing between shadow banking and traditional banking and higher transparency on institutional governance.

 

 

Keywords

Institutional quality; Originate-to-Distribute (OTD) model; quantile regression; securitization; Shadow banking; traditional banks

JEL Codes

C132, C230, G210, G230
http://dx.doi.org/10.17576/JEM-2023-5703-07
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Bibliography

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Har, W. M., Yap, C. Y., Sek, S. K., & Lee, H. S. (2023). Institutional Quality, Financial Factors and Shadow Banking. Jurnal Ekonomi Malaysia, 57(3), 89–102. http://dx.doi.org/10.17576/JEM-2023-5703-07

@article{munhar2023institutional,
  title={Institutional Quality, Financial Factors and Shadow Banking},
  author={Har, Wai Mun and Yap, Ching Yee and Sek, Siok Kun and Lee, Hui Shan},
  journal={Jurnal Ekonomi Malaysia},
  volume={57},
  number={3},
  pages={89—102},
 

year={2023},
}

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