Effects Of The Shadow Banking System To Financial Stability

Shadow banking system is defined as entities and activities outside the regular banking system and may raises systemic risk concerns and implemented the functions of the traditional commercial banks in America. The shadow banking system of America and the development of financial innovation on financial derivatives have made a huge contribution to the prosperity of global financial market before the financial crisis in2008. However, financial stability is weakened by the endogenous vulnerability of shadow banking system which is thought to be the cause of the subprime mortgage crisis of America in2007, which made a negative influence on global financial stability and economics.This paper analyzes the current development situation of Chinese shadow banking system and how the system affect the financial stability on the basis of the definition of Chinese shadow banking system defined by the author. According to FSIs which is contributed by IMF to measure the financial stability, the paper divides Chinese financial stability into three parts:the financial institution stability, the financial market stability, the financial regulatory and analyzes the influence made by Chinese shadow banking system on commercial banks and securities companies, the asset scale, interest rate and structure of financial market, the stability of real estate market, Central bank and the mode of Chinese financial regulatory. The paper argues that Chinese shadow banking stimulates financial innovations and promotes the regulatory system form in china, meanwhile, it increases systemic risk of the whole financial system and assembles risk in financial institutions, which increases the possibility of financial crisis.At the end, the paper propose some policy to improve the regulation of Chinese shadow banking system and makes a conclusion that in order to create a good environment for financial liberalization, promote the development of Chinese financial market well and stably and contribute to Chinese economic development, authorities should adopt different regulatory measures according to different influences shadow banking take on the stability of some parts of the financial system and should seize the relationship between financial innovations and financial regulatory appropriately.