Private banking development in China under two organizational structures: Economic analysis from an organizational innovation perspective

He Liu, Yun Bai, Zhiguang Huang, Han Qiao () and Shouyang Wang
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He Liu: Central University of Finance and Economics
Yun Bai: Academy of Mathematics and Systems Science, Chinese Academy of Sciences
Zhiguang Huang: University of Chinese Academy of Sciences
Han Qiao: University of Chinese Academy of Sciences
Shouyang Wang: Academy of Mathematics and Systems Science, Chinese Academy of Sciences

Financial Innovation, 2023, vol. 9, issue 1, 1-23

Abstract: Abstract This paper investigates optimal decisions for private banking development in China under two innovative organizational structures—the big retail mode (BRM) and the independent development mode (IDM). Under the BRM, the retail and private banking divisions form a cooperative relationship wherein the former transfers high-net-worth customers to the latter. In addition, retail banking receives a share of private banking revenues. We investigate the optimal revenue-sharing ratio between the two divisions and the optimal effort by private banking to serve transferred customers within the cooperative relationship. The analytical results show that as the private banking division becomes more developed, the optimal revenue-sharing ratio decreases, and the private banking division’s optimal effort to serve transferred customers decreases because it puts more effort into acquiring new customers. Under the IDM, the two divisions form a competitive relationship since they compete to acquire customers independently. We investigate customer acquisition efforts in this interdivisional competition. Optimal customer acquisition efforts by both divisions increase in potential assets and rates of return. This paper contributes to the literature by (1) analyzing financial innovation by private banks from an organizational perspective; (2) providing an economic analysis for private banking development in China.

Keywords: Competition; Cooperation; Innovative financial services; Optimal banking decisions; Organizational innovation; Private banking (search for similar items in EconPapers)
JEL-codes: C72 G2 G21 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1186/s40854-023-00535-w

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