The Study Of Shadow Banking: Conept, Characteristics And Regulatory Framework

Shadow Banking is a brandnew term which was brought out by McCulley, theexecutive director of Pacific Investment Management Company in 2007. It is aconcept compared with the traditional commercial banks, which includes all financialintermediaries out of traditional commercial banking system that can carry out thesimilar functions of traditional commercial banks, providing liquidity and credit, andare rarely regulated currently. Broadly speaking, the scope of shadow banking systemcontains investment banks, finance companies, money market funds, hedge funds,special purpose vehicles, holders of structural financial tools and financial assets, andentities partly involved in the shadow banking activities. They operate businessactively in the financial market through securitization, structured financial products,commercial paper, repurchase agreements and other financial derivatives.Due to the characters of high leverage, opaqueness, maturity/liquiditytransformation and flawed credit risk transfer, shadow banking system gets very highfinancial vulnerability, and brings serious systemic risk to the financial systemaccording to the closely connection with the traditional commercial banks andgrowing activeness in financial markets. This makes shadow banks the chief culprit ofthe global financial crisis in 2007. The study of shadow banking system is theresearch frontiers of finance and law which is just about to commence. Although theterm has being repeatedly mentioned, but the importent basic theory of it has neverbeen clearly and deeply discussed and established. As a fresh word, the connotation,extension, nature and features of shadow banks are not yet clearly and accuratelyconsidered no matter in domestic or foreign academic field, which makes furtherstudy and regulation impossible or inefficient. Now the regulation and oversight ofshadow banking becomes one of the most important work of the governments. Thesignificant premise of regulatory framework establishment is to define the connotationand extension of shadow banking, and analyze the positive and negative value of it,then the regulation and oversight framework could be worked on and built up. Theauthor will define what is shadow banking and which should be included in it first,discuss the value of shadow banking system, then comparatively analyze theregulation law of United States and Financial Stability Board of G20 to figure out how to establish the efficient regulation and oversight framework for China, and giveadvices which aims at building the theory study of shadow banking and providing thelegislative guidance, theoretical basis and reference.The first part of the article is to mainly research and discuss the connotation andextension of shadow banking’s concept. Combined with the existing literature theory,author does a careful analysis of the elements of connotation, and based on that set thedetailed classification of shadow banking system.In the second part, author has summarized the common characteristics of shadowbanks according to the analytical considerations of the entities and activities ofshadow banking system, and discussed the financial fragility of shadow banksespecially. Furthermore, the author concludes the main form, current situation andspecific features of shadow banking system in China.The third part emphasizes on the comparative analysis of the regulatoryframework and law of shadow banks in United States and Financial Stability Board ofG20. Author has collected the legal documents, reports, bills and thesises of USA andFSB as much as possible, and sorted them carefully. This part has summarized theexisted regulation frameworks and law, and from which analyze and comment thelegislative trends of shadow banking regulation and what China can learn from it.Based on the research and study before, the fourth part of the article hasdissected the positive and negative value of shadow banking system objectively. Atthat value orientation, with the experience and reference of regulation and oversight inUSA and FSB, author has discussed how to establish the regulatory framework inChina from the aspects of regulatory principles, objects, key directions and mainoversight fields, and has given valuable legal suggestions.