Shadow bank, risk-taking, and real estate financing: Evidence from the online loan market

• Main Authors: DENG, Xiaoying, LIU, Chong, ONG, Eng Seow
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2024
• Subjects: Online lending; risk taking; real estate loans; house purchase restrictions; Asian Studies; Finance and Financial Management; Real Estate
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/7239; https://ink.library.smu.edu.sg/context/lkcsb_research/article/8238/viewcontent/ShadowBank_av.pdf
• Institution: Singapore Management University

This paper examines whether and how individual risk-taking behavior affects real estate financing through shadow banks. Using the loan data from an online platform in China, we show that riskier households tend to employ online loans to meet the increasing down-payment in their home purchase. Individual investors are likely to fund riskier real estate loans with higher expected returns. Real estate loans experience higher ex-post default rates than other types of loans. The effect is more pronounced during the period of credit constraints.