Share pledge lending, monetary policy, and shadow banking nexus

We study how monetary policy affects brokers' shadow banking activities in the context of share pledge lending. Using China loan-level data and the quantity-based monetary model of Chen et al. (2018) , we find a strong positive association between brokers' share pledge loans and monetary policy shocks. This association is more pronounced among brokers with stronger profit-seeking motives. The broker-borrower relationship helps borrowers get through political shocks and shapes value-destroying collusion. Also, we conduct a difference-in-difference (DiD) test to identify a new broker lending channel of monetary policy — policies for restricting shadow banking significantly curb brokers' lending via share pledge loans, embodying the effectiveness of monetary policy. Our finding reveals the transmission mechanism through which monetary policies intervene shadow banking underlying the share pledge lending market. • Positive link between monetary policy shocks and brokers' share pledge loans. • Pronounced effect on brokers with lower ROA, higher dependence on pledge profits. • Policies curbed brokers' share pledge lending, boosting monetary policy effectiveness. • Identified broker lending channel via difference-in-difference analysis. • Economic mechanisms in China's shadow banking and share pledge lending.