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

Viral V. Acharya (), Jun “QJ” Qian (), Yang Su () and Zhishu Yang ()
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Viral V. Acharya: Stern School of Business, New York University, New York, New York 10012; and Center for Economic and Policy Research, Washington, District of Columbia 20009; and European Corporate Governance Institute, 1000 Brussels, Belgium; and National Bureau of Economic Research, Cambridge, Massachusetts 02138
Jun “QJ” Qian: International School of Finance, Fudan University, Shanghai 200433, China; and Asian Bureau of Finance and Economic Research, Singapore 117592
Yang Su: Business School, Chinese University of Hong Kong, Hong Kong
Zhishu Yang: School of Economics and Management, Tsinghua University, Beijing 100084, China

Management Science, 2025, vol. 71, issue 7, 5645-5675

Abstract: The rise of shadow banking and attendant financial fragility in China can be traced to intensified deposit competition following the 2008–2009 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 (search for similar items in EconPapers)
Date: 2025
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