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Interaction between Non-standard Debt and Wealth Management Products in China

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  • Peng Liao

Abstract

This paper investigates the interaction between non-standard debt investment (NSDI) and non-principal-guaranteed wealth management products (WMPs) of commercial banks in China after controlling the influences of several bank-specific and regulatory determinants. A credit switching model is employed to illustrate the mechanism in which special interest vehicles (SIVs) serve as the conduits for parent banks to conduct regulatory arbitrage by trade-off between on-balance-sheet funding strategy NSDI and off-balance-sheet financing via consignment of WMPs. Using a panel data set of 10 state-owned and joint-stock listed commercial banks over a period of six years (from 2013H2 to 2019H1), our results indicate there exists some statistically significant mutual promotion effects between NSDI and WMPs for Chinese banking and shadow banking system. We also find significant liquidity shock from WMPs to the interbank market. On average, the liquidity need is 4.6% of the WMPs’ total balance. This study provides a new perspective to interpret the mechanism of the causes and consequences of shadow banking in China.  JEL classification numbers: C33 G21 G28

Suggested Citation

  • Peng Liao, 2020. "Interaction between Non-standard Debt and Wealth Management Products in China," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 10(5), pages 1-8.
    • Handle: RePEc:spt:apfiba:v:10:y:2020:i:5:f:10_5_8
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    References listed on IDEAS

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    1. Luo, Ronghua & Fang, Hongyan & Liu, Jinjin & Zhao, Senyang, 2019. "Maturity mismatch and incentives: Evidence from bank issued wealth management products in China," Journal of Banking & Finance, Elsevier, vol. 107(C), pages 1-1.
    2. Li, Jianjun & Hsu, Sara & Qin, Yanzhi, 2014. "Shadow banking in China: Institutional risks," China Economic Review, Elsevier, vol. 31(C), pages 119-129.
    3. Wu, Meng-Wen & Shen, Chung Hua, 2019. "Effects of shadow banking on bank risks from the view of capital adequacy," International Review of Economics & Finance, Elsevier, vol. 63(C), pages 176-197.
    4. An, Ping & Yu, Mengxuan, 2018. "Neglected part of shadow banking in China," International Review of Economics & Finance, Elsevier, vol. 57(C), pages 211-236.
    5. Hou, Xiaohui & Li, Shuo & Guo, Pin & Wang, Qing, 2018. "The cost effects of shadow banking activities and political intervention: Evidence from the banking sector in China," International Review of Economics & Finance, Elsevier, vol. 57(C), pages 307-318.
    6. Tan, Yong, 2017. "The impacts of competition and shadow banking on profitability: Evidence from the Chinese banking industry," The North American Journal of Economics and Finance, Elsevier, vol. 42(C), pages 89-106.
    7. Yang, Liu & van Wijnbergen, S. & Qi, Xiaotong & Yi, Yuhuan, 2019. "Chinese shadow banking, financial regulation and effectiveness of monetary policy," Pacific-Basin Finance Journal, Elsevier, vol. 57(C).
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    Cited by:

    1. Gang Bai & Chunhui Chen, 2023. "Managing Information Sensitivity: The Relationship between the Interbank Offered Rate and the Characteristics of Bank-Issued Wealth Management Products in China," Sustainability, MDPI, vol. 15(2), pages 1-19, January.
    2. Shah, Syed Mehmood Raza & Fu, Qiang & Dawood, Muhammad & Ishfaq, Muhammad, 2020. "Issuance of Wealth Management Products and Expected Yields; A Shadow Banking Perspective," MPRA Paper 104147, University Library of Munich, Germany.

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    More about this item

    Keywords

    Non-standard Debt; Wealth Management Product; Liquidity Shock; Shadow Banking.;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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