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Regulatory arbitrage and window-dressing in the shadow banking activities: evidence from China’s Wealth Management Products

Author

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  • Jinghan Cai

    (University of Scranton)

  • Alicia Garcia-Herrero

    (NATIXIS and Bruegel)

  • Le Xia

    (BBVA Research)

Abstract

We examine wealth management products (WMP) issued by Chinese commercial banks, which are an important part of China’s fast growing shadow banking sector. We document that the WMPs’ maturity dates cluster toward the end of a month and then decrease significantly at the beginning of the following month. Our empirical work detects a negative relationship between a bank’s loan-to-deposit ratio (LDR) at the end of a quarter and the number of its issued WMPs expiring within several days of the quarter-end. Our findings suggest that banks are using WMPs as vehicles for their regulatory arbitrage or window- dressing behaviors.

Suggested Citation

  • Jinghan Cai & Alicia Garcia-Herrero & Le Xia, "undated". "Regulatory arbitrage and window-dressing in the shadow banking activities: evidence from China’s Wealth Management Products," GRU Working Paper Series GRU_2016_006, City University of Hong Kong, Department of Economics and Finance, Global Research Unit.
    • Handle: RePEc:cth:wpaper:gru_2016_006
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