In the Shadow of Banks: Wealth Management Products and Issuing Banks’ Risk in China

68 Pages Posted: 18 Jun 2019 Last revised: 1 Mar 2021

See all articles by Viral V. Acharya

Viral V. Acharya

New York University - 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

Fanhai International School of Finance, Fudan University; University of Pennsylvania - Wharton Financial Institutions Center

Yang Su

University of Chicago Booth School of Business

Zhishu Yang

Tsinghua University - School of Economics & Management

Date Written: February 28, 2021

Abstract

We study the causes and consequences of growth in shadow banking by examining the Chinese banks’ issuance of Wealth Management Products (WMPs), which are short-maturity off-balance-sheet substitutes for deposits. Using branching overlap data, we instrument deposit availability with banks’ exposure to competition from a large state-owned bank, which substantially increased loan supply to support the fiscal stimulus during the Global Financial Crisis and competed more aggressively for deposits thereafter. We show that deposit market competition has a causal effect on smaller banks’ reliance on shadow banking: exposed banks increased the issuance of WMPs sharply, creating rollover risk for these banks.

Keywords: Shadow banking, off-balance sheet liabilities, deposit competition, fiscal stimulus, rollover risk.

JEL Classification: G2, E4, L2

Suggested Citation

Acharya, Viral V. and Qian, Jun and Su, Yang and Yang, Zhishu, In the Shadow of Banks: Wealth Management Products and Issuing Banks’ Risk in China (February 28, 2021). NYU Stern School of Business, Available at SSRN: https://ssrn.com/abstract=3401597 or http://dx.doi.org/10.2139/ssrn.3401597

Viral V. Acharya

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

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

HOME PAGE: http://pages.stern.nyu.edu/~sternfin/vacharya/public_html/~vacharya.htm

New York University (NYU) - Department of Finance

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Jun Qian (Contact Author)

Fanhai International School of Finance, Fudan University ( email )

Shanghai
China
86-21-63895501 (Phone)
86-21-62934572 (Fax)

HOME PAGE: http://www.fisf.fudan.edu.cn/show-65-69.html

University of Pennsylvania - Wharton Financial Institutions Center

2306 Steinberg Hall-Dietrich Hall
Philadelphia, PA 19104
United States

HOME PAGE: http://fic.wharton.upenn.edu/fic/

Yang Su

University of Chicago Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
7732195792 (Phone)
60615 (Fax)

Zhishu Yang

Tsinghua University - School of Economics & Management ( email )

Beijing, 100084
China
+86-10-62771769 (Phone)
+86-10-62785562 (Fax)

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