Why do Banks Issue Wealth Management Product?

Assistant Professor, WISE & SOE, Xiamen University

Homepage: http://www.wise.xmu.edu.cn/people/faculty/17d9773b_6c4d_4314_b35f_ba0d614e2164.html

We build a model to answer two sets of questions. (1) What motivates banks to offer wealth management products (WMP)? (2) If a bank is actively selling WMPs, what characteristics does it exhibit? We fi nd there are at least three possible reasons for a bank to actively off er WMPs: (i)a bank is making high-return loans; (ii) a bank is able to sell WMPs with interest rates lower than its competitors; or (iii) a bank has liquidity troubles. These theoretical hypotheses are also confirmed with empirical studies.