Shadow Banking and Interest Rate Liberalization: Evidence from Wealth Management Products and Interbank CDs in China

Banks bear risks that originate from their shadow banking businesses. To quantify

banks' risk exposure to their shadow banking activities, we compile a comprehensive
product-level data on one of China's major shadow banking sectors, the
wealth management product (WMP) sector, and link it to interbank CD data. In
this paper, we have three main findings: 1) small and medium-sized banks assume
more risks from their WMPs than large banks do; 2) banks bear more risks from
their institutional WMP than from retail ones; 3) the introduction of the inter-
bank CD market increases risks that small and medium-sized banks bear from their
non-interbank WMPs.