Investor Presentaiton

Remark Gennaioli, Shleifer and Vishny (2012) propose the notion of neglected risks by both investors and financial intermediaries. Chinese shadow banking is different. Banks are aware of the risks so they are not surprised since these products are not complicated financial products (see Example 1). Also, banks do not face additional risks since they are not liable by contractual design. Rather than neglecting risks, investors overlook or (intentionally) neglect the contractual clause that banks are not liable. Financial institutions are not the buyers of shadow banking products and they are not traded in secondary markets so the implication for systemic risks is different.

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