A Study On The Relationship Between The Development Of Shadow Bank And The Marketization Of Interest Rate

In recent years, the scale of the shadow banking system is catching public’s attention. As an important way of social financing, the existence of the shadow banking has changed the financing pattern which has been dominated by commercial banks in our country. Therefore, this paper has important theoretical and practical on the development of China’s shadow banking. Exploring the causes of the development, it is obvious that the emergence of shadow banking is a form of financial innovation which has broken through the financial regulations. Specifically, the expanding of the shadow banking is resulting from controlling of interest rate. On the other hand, shadow banking’s development can accelerate the process of interest rate liberalization by the forms of financial innovation such as channel, pricing mechanism and supervision breakthroughs.Few of the existing literature have studies on the two-way relationship between the shadow banking and interest rate liberalization. Based on financial innovation theory and monthly data from 2004 to 2014, this paper mainly analyses the relationship between shadow banking’s development and interest rate liberalization reform in China. The results show that different countries’shadow banking has different innovation mechanism and different effect on interest rate liberalization. Underestimated deposit rates and overestimated lending rates are important prerequisites for shadow banking’s growth, while the impact of deposit rates is obviously stronger than lending rates. Optimizing the combination of deposit and lending rates’policies is the key to realize the interest rate liberalization and the sound development of shadow banking.