The Moderating Role of Bank-Specific Factors on Commercial Bank Lending - Shadow Banking Nexus

This thesis examines the moderating role of commercial bank-specific factors on commercial bank lending - shadow banking nexus. To this aim, firstly, this thesis constitutes an initial attempt to examine bank risks and profitability effects on commercial bank lending-shadow banking nexus in emerging market economies (EMEs). One-step and two-step system GMM results suggest that commercial banks’ credit risk, capital risk and profitability have a key role in the bank lending-shadow banking nexus. Findings also reveal that shadow banking can act as both substitutes and complements to traditional banking. Moreover, high institutional demand and lower restrictions on bank activities are found to be among the main drivers of shadow banking expansion. Secondly, this thesis investigates whether bank-specific factors within the CAMELS framework moderates the linkage between commercial bank lending (CBL) and nonbank financial intermediation (NBFI). Both static (fixed effects and random effects) and dynamic (one-step and two-step system GMM) panel techniques are employed for the sample of 29 countries spanning 2002-2020. Empirical findings provide strong evidence for the complementarity hypothesis between commercial banking and NBFI sectors. Moreover, marginal effects of CBL on NBFI reveal that complementarity between two sectors depends on several commercial bank-specific characteristics. That is, a strong capital position, poor asset quality, high liquidity position, and high exposure to market risk seem to weaken the link (complementarity) between the two sectors.