Fiscal Stimulus, Deposit Competition, and the Rise of Shadow Banking: Evidence from China

Forthcoming, Management Science

75 Pages Posted: 18 Jun 2019 Last revised: 15 May 2024

See all articles by Viral V. Acharya

Viral V. Acharya

New York University (NYU) - Leonard N. Stern School of Business; New York University (NYU) - Department of Finance; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); National Bureau of Economic Research (NBER)

Jun "QJ" Qian

Fudan University - International School of Finance (FISF); National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER)

Yang Su

CUHK Business School

Zhishu Yang

Tsinghua University - School of Economics & Management

Multiple version iconThere are 2 versions of this paper

Date Written: May 10, 2024

Abstract

The rise of shadow banking and attendant financial fragility in China can be traced to intensified deposit competition following the global financial crisis (GFC). A large, state-owned bank’s deposits from cross-border money inflows fell significantly following the GFC, and it supported the government’s fiscal stimulus more aggressively than other large banks by issuing larger volumes of new loans. Small and medium-sized banks with more branch-level overlaps with this large bank relied more on shadow banking, and issued more Wealth Management Products (WMPs)—short-maturity, off-balance-sheet substitutes for deposits. Greater amounts of WMPs created rollover risks for the issuers, as reflected by higher yields on new WMPs, higher borrowing rates in the interbank market, and lower stock-market performance during liquidity stress.

Keywords: Bank deposits, off-balance sheet liabilities, wealth management products, rollover risk, financial fragility

JEL Classification: G2, E4, L2

Suggested Citation

Acharya, Viral V. and Acharya, Viral V. and Qian, Jun and Su, Yang and Yang, Zhishu, Fiscal Stimulus, Deposit Competition, and the Rise of Shadow Banking: Evidence from China (May 10, 2024). Forthcoming, Management Science, Available at SSRN: https://ssrn.com/abstract=3401597 or http://dx.doi.org/10.2139/ssrn.3401597

Viral V. Acharya

New York University (NYU) - Leonard N. Stern School of Business ( email )

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HOME PAGE: http://www.stern.nyu.edu/~vacharya

New York University (NYU) - Department of Finance ( email )

Stern School of Business
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Centre for Economic Policy Research (CEPR) ( email )

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National Bureau of Economic Research (NBER) ( email )

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Jun Qian (Contact Author)

Fudan University - International School of Finance (FISF) ( email )

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HOME PAGE: http://fisf.fudan.edu.cn/en_show-112-69.html

National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER) ( email )

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Yang Su

CUHK Business School ( email )

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Hong Kong

Zhishu Yang

Tsinghua University - School of Economics & Management ( email )

Beijing, 100084
China
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+86-10-62785562 (Fax)

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