Research On The Impact Of Shadow Banking On The Financial Stability In China

Since the2008financial crisis, the shadow banking problems have been attractedworldwide attention. In recent years, the shadow banking system in China has beendeveloped rapidly, bank-trust cooperation, entrusted loans, financial products, undergroundbanks and other forms of shadow banking in the financial system became the socialfinancing system which paralleled with the traditional commercial banking system. Therisks of shadow banking and its impact on financial stability have become the focus ofattention. From the objective and rational perspective on the issue of China’s shadowbanking, I analyzed its impact on financial stability mechanism theoretically and studied itseffects on financial system through empirical analysis.First, according to the characteristics of China’s financial system, I defined China’sshadow banking and gave a detailed description of the current situation. Then, the articletalked about the causes of China’s shadow banking and calculated the scale of it. In recentyears, the rapid development of China’s shadow banking almost became an exponentialgrowth, and it reached26trillion RMB at the end of2012. Meanwhile, the paper studiesthe theory of financial stability with China’s financial stability was calculated andanalyzed.On this basis, the article analyzed the mechanism of shadow banking on the financialstability theoretically, which through both positive and negative channels. I used SVARmodel creatively to empirical analyze the impact of China’s shadow banking on thefinancial stability. The impulse response functions and variance decomposition resultsshowed that the development of China’s shadow banking has negative effects on financialstability of the overall performance, and the effects had concealment and lag. Conclusionalso suggests that the development of the shadow banking promoted the economicdevelopment.Finally, this paper presented policy recommendations relevant to empiricalconclusions. We should grasp its formation mechanism and characteristics, construct areasonable regulatory system to control shadow banking system from the roots of it. Weought to let it service the real economy and financial modernization, ensure the healthy and stability of financial system.