| Summary: | Commercial banks in china began issuing internet money funds in 2013, and
by 2023, its total net market value could rival the combined deposits of china's four
largest commercial banks. As internet money funds divert large amounts of bank
deposits, they may reduce the source of funding for bank loans, leading to weak
growth in the lending business. Between 2014 and 2022, 50% of the listed banks'
loan size growth rate showed a downward trend. According to the theory of
substitution effect, there is a certain degree of substitution effect between internet
money funds and deposits; meanwhile, bank deposits serve as the primary source of
funding for bank loans, significantly impacting bank loans. Therefore, this thesis
investigates the impact of internet money funds on lending operations as well as the
mediation effect of deposits in said impact. A panel model with dynamic features is
estimated using the gmm method and analyzed using nine years of annual data from
twenty commercial banks listed in china before 2014. The study found that the rapid
growth in internet money funds dampened the size of loans. Deposits play a
mediating role of 27.42% in the influence of internet money funds on bank loans. As
a result, banks need to take a series of measures to boost their lending business, such
as imposing restrictions on internet money funds, rationalizing their pricing, and
increasing the yield on deposits.
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