Financial Supervision, Establishment of Wealth Management Subsidiaries and Expansion of Macroprudential Management
GAO Jiechao, FAN Conglai, JIA Pengfei, YANG Yuanyuan
School of International Business, Shanghai University of International Business and Economics; Business School, Nanjing University; School of Finance, Nanjing Audit University
Summary:
The research motivation of this paper initially stems from the literatures' lag in capturing the development of the real world. The latest reality in China is that, with the continuous advancement of strict financial supervision, the rigid redemption of off-balance-sheet wealth management products has been broken. Independently operated wealth management subsidiaries have become the main players in this market. Wealth management is no longer an off-balance-sheet channel for commercial banks to evade regulation. This phenomenon has not yet been captured by existing literatures. From the perspective of China's macro policy evolution, the expansion of macroprudential management is an important direction. In the past, financial supervision focused on improving microprudential supervision. In the future, how to further improve macroprudential management will be an important task. The 2023 Central Financial Work Conference proposed to comprehensively strengthen financial supervision and legally bring all financial activities under regulation. In 2024, the Macroprudential Management Bureau of the People's Bank of China pointed out that the central bank will further strengthen macroprudential management, and on the basis of taking banking financial institutions as the key objects of macroprudential management, gradually include major financial activities, financial markets, financial infrastructure and non-banking financial institutions into macroprudential management. The research background of this paper mainly includes two aspects: First, the main investors in the wealth management market are individuals, mostly with low-risk preference, which is very similar to the deposit market. The established wealth management subsidiaries have become the main body of the wealth management market. As deposit interest rates continue to decline, the competition between wealth management products and deposits on the household side has become increasingly fierce. In terms of the use of funds, wealth management products provide a huge amount of funds for the real economy by investing in bonds, non-standardized bonds, unlisted equities and other assets, forming a complement to bank credit. Second, macroprudential management has not yet covered the wealth management market. At present, the supervision of wealth management subsidiaries mainly relies on microprudential documents such as the Measures for the Administration of Wealth Management Subsidiaries of Commercial Banks, lacking specialized macroprudential management. This paper establishes a parallel financial structure including commercial banks and wealth management subsidiaries within a DSGE model. It uses macroeconomic time series data from the fourth quarter of 2008 to the second quarter of 2023 to conduct Bayesian estimation of the structural model, and employs counterfactual simulation methods to analyze the effects after incorporating wealth management subsidiaries into macroprudential management. The research findings show that, when macroprudential management is implemented on wealth management subsidiaries with increasing intensity, the volatilities of all major macroeconomic variables become lower. Under the dual-pillar regulatory framework, the expansion of macroprudential management will not conflict with the monetary policy, and there will be more flexible choices for the coordination between the two policies. This paper puts forward the following policy implications: First, wealth management subsidiaries should be incorporated into macroprudential management as soon as possible, and the intensity of countercyclical adjustments should be strengthened. This adjustment can significantly reduce macroeconomic fluctuations and expand the policy space of the dual-pillar regulation. Second, an expansion mechanism of macroprudential management can be established to hedge against excessive fluctuations in the local economy, thereby better balancing long term structural adjustments and short-term economic stability, considering the continuous reduction of shadow banking under strict financial supervision and the gradual relaxation of housing financial constraints by the government. Third, further consideration should focus on incorporating non-banking financial institutions into macroprudential management in a larger scope in an orderly and steady manner.
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