The Impacts of Negotiable Certificate of Deposits Issuance on Shadow Banking Activities: Evidence from the Chinese Banking Industry.

Abstract

This paper investigates the impacts of having access to Negotiable Certificate of Deposits (NCDs) markets on the shadow banking activities for different types of banks based on product-level data over 2013 to 2016 in China. We find that since NCDs markets opened up, small- and medium-sized banks have become the main NCDs issuers but the impacts on their wealth management products are significantly different. Small-sized banks offer higher NCDs yields than medium-sized banks. However, small-sized banks decrease returns on wealth management products (WMPs) while medium-sized banks do not show a significant change. In addition, although small-sized banks pay lower returns on WMPs, the payment rigidity problem became worse in short run. Furthermore, the interest rate spread between interbank WMPs and NCDs narrowed down significantly for small-sized banks in interbank wholesale funding sector.