The regulatory arbitrage and window dressing in shadow banking: the example of Chinese wealth management product

Jinghan Cai, Alicia García-Herrero, Fengyun Li and Xia Le
Authors registered in the RePEc Author Service: Alicia Garcia Herrero

Economic and Political Studies, 2019, vol. 7, issue 3, 314-336

Abstract: We document that in China the maturity dates of bank-issued wealth management products (WMPs) 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 month-ends and the number of its issued WMPs expiring within several days of the month-end. Moreover, this WMP clustering and the negative relationship disappear after the reform in which regulators bring up measures for banks with a high deposit deviation degree in 2014. We also document that the banks tend to arrange the high-return WMPs to expire around month-ends to attract customers, and this clustering of high-return WMPs also disappears after the reform. Our findings suggest that banks actively, rather than passively, use WMPs as vehicles for their regulatory arbitrage or window dressing behaviours.

Date: 2019
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Citations: View citations in EconPapers (5)

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DOI: 10.1080/20954816.2019.1633825

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