Abstract
China's 2018 rules on wealth management products (WMPs) have led to determined efforts by regulators to reduce risk in the shadow banking system. Through theoretical model and empirical testing, we explore the impact of the regulation on WMPs and bank performance. Our study finds that after the regulation, banks changed the issuance structure and their profit and risk reduced. The capital did not flow back to on-balance sheet business and the return of WMPs decreased after the regulation.
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