Abstract
We report significant effects of the development of money market funds (MMFs) on bank deposits, loans and interest rate liberalization using bank data in China from 2008 to 2014. In particular, the development of MMFs has shifted away bank deposits and reduced banks’ ability to make loans. Furthermore, the yields of bank-guaranteed financial products and MMFs show a significant and positive relation, implying that the development of MMFs has promoted interest rate liberalization in China. These results remain to hold after we control for the potential simultaneity bias.
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