Do Interest Rate Liberalization and Fintech Mix? Impact on Shadow Deposits in China

• DOI: 10.1111/cwe.12304
• Publication Date: 2019-11-21T06:44:51Z
• Authors: Stephanie Chan; Yang Ji
• Keywords: Patience; Shadow price

Abstract In this paper we attempt to characterize the stability of shadow deposits in China with interest rate liberalization and fintech developments. We emphasize that banks provide higher but riskier returns such characteristics affect deposits. our setting, is influenced by two offsetting effects, namely: patience effect, which makes investors more willing wait because potentially returns; uncertainty likely withdraw as a result risk. Under liberalized rates, effect will erode be heightened post‐liberalization return traditional undermines importance extra depositors, while preserving risk aspect. Fintech development modeled reduction withdrawal cost facilitates runs. This affects their wider reliance. Regulators should cautious pushing application alongside building safety net for banking.