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ABSTRACT
By studying the relationship between shadow banking activities of commercial banks in China and the pricing of deposits and loan interest rates, we find that shadow banking promotes the liberalization of commercial bank interest rate pricing. Further research finds commercial banks’ shadow banking businesses improve their liquidity. Compared with state-owned banks, the development of shadow banking promotes the liberalization of the deposit and loan interest rate pricing of non-state-owned banks to a greater extent. Therefore, we believe China should support the development of shadow banking to promote the liberalization of interest rates and monetary policy transformation.
Disclosure statement
No potential conflict of interest was reported by the author(s).
C. Robustness checks
Columns (1) to (3) of report the empirical results of replacing the explanatory variables, and columns (4) and (5) of report the estimated results of the simultaneous equations. Columns (1) to (3) of report the empirical results of the GMM, and columns (4) to (6) of report the empirical results of the 2SLS. Most of the p-values of the Hansen test are between 0.1 and 0.25, indicating that the combination of instrumental variables is effective and the test is strong. reports the results of the subsample regression, which shorten the data interval to 2007–2019. The empirical results show that commercial banks’ shadow banking business can promote the liberalization of their on-balance sheet loan interest rates, while the impact on deposit interest rates is not obvious, and commercial banks’ shadow banking business can increase their book liquidity. The empirical results were consistent with the benchmark regression, demonstrating that the conclusions of this study are robust.