Pricing Strategy Of Wealth Management Products And Bank Liquidity

Since the China Everbright Bank launched the first RMB financial products in 2004,Wealth Management Products(WMPs)have gone through 13 years,as an important business in the transformation of banking,WMPs play an important role in the Chinese shadow banking system.In the past 10 years,on the one hand,for creating more profits,banks increase loans;on the other hand,banks received 75%Loan Deposit Ratio(LDR)limit,this contradiction had led to the poor liquidity of banks.At the same time WMPs had increased rapidly,the two have any connection?How the banks determine the expected return rate of WMPs?Why the banks issue WMPs?For the study of WMPs,most of the scholars study the mechanism of pricing the expected return rate of WMPs from the macro level.Rarely study the connection between the WMPs and the LDR.We study 16 listed banks from 2008-2014 quarterly data,which is divided into Four major state-owned banks(Big4)and Other small and medium-sized banks(SMBs).We study how the market rate,competition between banks,the risk of banks affect the two types of bank's expected return rate when facing the deficient of LDR.We further divide the WMPs into the Principal-guaranteed and the Non Principal-guaranteed.We find the deficient of LDR is an important reason why banks issue WMPs.When the market interest rate or the competition increases,the act is different for the Big4 and the SMBs.The Big4 will increase expected return rate for the Non Principal-guaranteed,to disguise loans,while the SMBs only increase the Principal-guaranteed to attract savings with high interest.When the the bank's own risk increases,both the two banks will increase the Principal-guaranteed to attract savings with high interest,so that it can raise fund in a shorter period.