The effects of shadow banking on stability and profitability of China’s commercial banks evidence from panel VAR

Yiran CAO*, Dong WANG

*Corresponding author for this work

Research output: Journal PublicationsPolicy or Profession paper


We apply vector auto regression (VAR) to bank-level panel data from 16 commercial banks to study the dynamic relationship between the size of shadow banking, stability and profitability of commercial banking system. By adopting orthogonalized impulse-response and variance decomposition functions we are able to separate the 'shadow banking factors' that influence the level of the soundness and profitability of China’s commercial banks. We find that the size of shadow banking positively/negatively relates to the profitability/stability of China’s commercial banks in the short term. But in the long run, the effects tend to be
weakened before which a short inverse also presents.
Original languageEnglish
JournalGeneral and Social Science: Current Trends
Issue number1:3
Publication statusPublished - May 2019



  • shadow banking
  • commerical bank
  • stability
  • profitability
  • panel VAR

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