Shadow financing through off-balance sheet wealth management products (WMPs) has become
increasingly important besides deposits in China. We quantify the economic magnitude of the
effect of WMPs on banking stability in an equilibrium model calibrated to Chinese banking sector
data. Alternative equilibria emerge, which deviate substantially from the observed banking system
and lead to severe financial distress and large welfare losses. Rollover costs from the WMP market
and negative shocks to the asset market underlying WMPs can exacerbate banking instability.
Moreover, we show that smaller and medium sized banks are comparably relevant for financial
stability as the systemically important big 4 banks in China.
Xu Fenga ;
Eva Lütkebohmertb ;
Yajun Xiaoc ;
Wealth Management Products, Banking Competition, and Stability: Evidence from China （2021年12月22日）http://www.cfrn.com.cn//lw/yhyjrjg/syyhlw/14c5ebcdd2584fa28a809e73d7b2bbe7.htm