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Shadow Banking in a Crisis: Evidence from Fintech During COVID-19

Published online by Cambridge University Press:  16 July 2021

Zhengyang Bao Open the ORCID record for Zhengyang Bao [Opens in a new window]  and
Difang Huang Open the ORCID record for Difang Huang [Opens in a new window]
Zhengyang Bao
Affiliation:
Department of Finance, School of Economics, Xiamen University, Wang Yanan Institute of Economics Studies, Xiamen University and MOE Key Laboratory of Econometrics, Xiamen Universityzhengyangbao@gmail.com
Difang Huang*
Affiliation:
Monash University Department of Econometrics and Business Statistics
*
difang.huang@monash.edu (corresponding author)
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Abstract

We analyze lending by traditional as well as fintech lenders during COVID-19. Comparing samples of fintech and bank loan records across the outbreak, we find that fintech companies are more likely to expand credit access to new and financially constrained borrowers after the start of the pandemic. However, this increased credit provision may not be sustainable; the delinquency rate of fintech loans triples after the outbreak, but there is no significant change in the delinquency of bank loans. Borrowers holding both loan types prioritize the payment of bank loans. These results shed light on the benefits provided by shadow banking in a crisis and hint at the potential fragility of such institutions when delinquency rates spike.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 56 , Issue 7: JFQA Symposium on the Consequences of the COVID-19 Pandemic for Firms and Capital Markets , November 2021 , pp. 2320 - 2355
Copyright
© The Author(s), 2021. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

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Footnotes

We are grateful to the anonymous referee, Franklin Allen, Robert Bartlett, Stephen Brown, Chen Chen, Josea Cheruiyot, Jennifer Conrad, Zhi Da, Phil Dybvig, Mark Grinblatt, Jarrad Harford (the editor), Kai Li, Nan Li, Ying Liang, Jun Liu, Zhuozhen Peng, Philip Strahan, Kumar Venkataraman, Jeroen Verbouw, Xinjie Wang, Yongxiang Wang, Hongjun Yan, Bohui Zhang, and Jinfan Zhang, and the audiences at the French Finance Association (AFFI), JFQA COVID-19 Symposium, Placekey Community Virtual Seminar, Shanghai International Studies University, Shanghai Jiaotong University, Southwestern University of Finance and Economics, Xiamen University, and University of Science and Technology in China for their constructive comments. We acknowledge helpful conversations with Hanqiang Guo (China Banking and Insurance Regulatory Commission) and Jiansan Li (People’s Bank of China) discussing regulations on the Chinese fintech industry. We thank Shona Bates and Julie Steiff for their editorial help. Bao is also affiliated with the Department of Finance, MOE Key Lab of Econometrics, and Fujian Key Lab of Statistics at Xiamen University. Huang is grateful to the faculty and staff at the University of Science and Technology in China and Xiamen University for their hospitality during his visit. Bao acknowledges financial support from Monash Business School, Basic Scientific Center Project (71988101) of the National Science Foundation of China, the 111 Project (B13028), and National Social Science Foundation of China (19ZDA060). Huang acknowledges financial support from the Australian Government Research Training Program and the Cochrane-Schofield Charitable Fund. All errors are our own.

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