Technology, regulation, and the transformation of bank deposit business in China

Xinyu Ge, Yan Liu and Yutong Yang

China Economic Review, 2025, vol. 93, issue C

Abstract: During the past decade, technology innovations and regulatory reforms have been swiftly transforming deposit business in China’s banking sector. To understand the transformation, this paper first constructs a model incorporating both large and small banks, as well as a FinTech sector, to analyze how technological and regulatory shocks impact bank deposit business. The paper then systematically examines the evolution of business practices and the differential responses of banks with varying sizes to three major shocks: the launch of Yu’e Bao in 2013, the full marketization of deposit rates in 2015, and the massive shadow banking regulation in 2017. Consistent with the model, large banks accelerate digital transformation and expand wealth management products following FinTech competition, while small banks compete more aggressively on deposit rates. The effectiveness of these strategies varies with market structure: large banks’ digital initiatives are more pronounced in regions with higher FinTech penetration, while small banks engage in more aggressive deposit rate competition in less concentrated markets. Our findings provide a comprehensive account of the evolution in the banking sector, with various policy implications in navigating the ever-evolving financial landscape in China.

Keywords: Bank deposit; FinTech; Marketization of interest rates; Shadow banking (search for similar items in EconPapers)
JEL-codes: E58 G21 G28 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:chieco:v:93:y:2025:i:c:s1043951x25001555

DOI: 10.1016/j.chieco.2025.102497

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