Monetary Policy Transmission And Systemic Financial Risk ——Based On The Shadow Banking

The risking-taking of shadow banking has impacted the effectiveness of monetary policy and macro prudential policy,and intensified the systemic financial risk.At present,China's economy has entered the "new normal",and the structural contradiction has become an important factor restricting the development of economy.Therefore,the People's Bank of China has created structural monetary policy tools to ease the financing difficulties of private,small and medium-sized enterprises,which is inevitable to have an impact on the shadow banking.Meanwhile,the hierarchical structure of financial institutions will lead to differences in liquidity allocation and generate motive to take profit,which will increase risk preference of financial institutions and change the allocation of assets.And then the resulted liquidity fluctuation will also increase the possibility of systemic financial risk.And environment factors,such as incomplete substitution of financial assets,asymmetric information and heterogeneity of micro entities,will be transmitted to the whole financial system through individual financial risk-taking,which will be resulted the systemic financial risk.Therefore,the research of the shadow banking's risk-taking and its impact on systemic financial risk will be of great significance to the formulation of monetary policy and financial stability.The main work of this study is reflected in the following:(i)it introduces the background,purpose and significance of this study,and also points out the innovations and shortcomings of the study.(ii)it summarizes the shortcomings of the existing research,and then discusses the issue of the research of this paper based on the literature review.(iii)the paper elaborates the transmission mechanism of monetary policy,and briefly discusses the development,origin and evolution process of shadow banking in China in order to clarify the characteristics,the significance of existence and potential risks of shadow banking,which will be established a theoretical foundation for the following research.(iv)from the perspective of the periodicity of shadow banking,we study the risk-taking of shadow banking and its impact on the systemic financial risk under the influence of traditional monetary policy.(v)we study the impact of structural monetary policy on the shadow banking,and its impact on the systemic financial risk in order to analyze the effectiveness of the structural monetary policy.(vi)financial frictions,such as financial system losses,uncertainty and mobility,will affect the risk tolerance of financial institutions.We analyze the theoretical mechanism by which financial frictions affect the transmission of monetary policy and conduct empirical tests based on the listed shadow banking.Finally,the conclusions and suggestions are given.The main conclusions of the research are as follows:From the aspect of traditional monetary policy: Firstly,the shadow banking owns the feature of counter-cyclicality under different monetary policy tool.Secondly,the counter-cyclical behavior has the characteristics of heterogeneity: under the quantitative tools,the shadow banking with higher capital adequacy ratio and yield has stronger characteristic of counter-cyclicality;shadow banking with lower capital adequacy ratio and yield has stronger characteristic of counter-cyclicality under price-based monetary policy.Thirdly,the counter-cyclical expansion of shadow banking may aggravate the systemic financial risk under the contractionary monetary policy.From the aspect of structural monetary policy: firstly,the standing loan facility increases the shadow banking scale,whose main objective is short-term liquidity adjustment;while the medium-term lending facility with structural adjustment as the main objective reduces the shadow banking scale.Secondly,the impact of structural monetary policy on the scale of shadow banking has the characteristic of heterogeneity: standing loan facility promotes the scale of shadow banking with sufficient capital and good profitability,while the medium-term lending facility depressed the development of shadow banking with low capital adequacy ratio and poor profitability.Thirdly,the structural monetary policy may increase the risk relevance of financial system due to the growth of shadow banking,and then aggravate the systemic financial risk.From the aspect of financial friction : Firstly,financial friction characterized by a lack of liquidity can enhance the sensitivity of shadow banks' individual risk-taking against monetary policy shocks and ultimately increase systemic financial risks as a result of the emergence of risk contagion or common risk exposures.Secondly,when there is a serious loss in the financial system and the“risk transfer”mechanism comes into play,shadow bank may take counter-cyclical risks,which will be lead to the failure of monetary policy.Based on the empirical results and current economic development,this paper puts forward some policy recommendations.Firstly,the regulator should pay attention to the counter-cyclicality of shadow banking and strengthen financial supervision of shadow banking avoiding the outbreak of systemic risk,especially under contractionary monetary policy.Secondly,it must strengthen the supervision of capital flow in the process of implementing the structural monetary policy and prevent the arbitrage of financial institutions leading to "idling" of funds in the financial system,and it also should be alert to the the effect on systemic financial risks.Thirdly,it is recommended that relevant authorities pay attention to the state of financial frictions and be ware of the financial instability caused by the pro-cyclical risk-taking of shadow bank and the failure of monetary policies caused by counter-cyclical risk-taking.