Working Paper: NBER ID: w29448
Authors: Greg Buchak; Jiayin Hu; Shangjin Wei
Abstract: A binding interest rate cap on household savings is a common form of financial repression in developing economies and typically benefits banks. Using proprietary data from a leading Chinese FinTech company, we study Fintech's role in ending financial repression in China through the introduction of a money market fund with deposit-like features available through an already widely-adopted household payment platform. Cities and banks whose depositor base is more exposed to FinTech see greater deposit outflows. Importantly, exposed banks respond to FinTech competition by offering competing products with market interest rates. FinTech thus facilitates a bottom-up interest rate liberalization.
Keywords: fintech; financial repression; China; money market funds; banking innovation
JEL Codes: E21; E42; E43; E44; E52; E58; G21; G28; G51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| yuebao exposure (F31) | deposit outflows (F21) |
| yuebao exposure (F31) | bank innovation (G21) |
| fintech competition (G29) | bottom-up interest rate liberalization (E43) |
| yuebao exposure (F31) | household demand deposits (E41) |
| fintech competition (G29) | bank profitability (G21) |
| fintech competition (G29) | bank stability (G28) |