Impact Of Shadow Banking System On China’s Monetary Policy And Financial Stability

After the 1990s, the shadow banking system has gradually become an important part of the modern international financial system. While the development of shadow banking promoting the financial innovation, it takes an enormous financial risk,2007 international financial crisis that instance. Since 2000, with the rapid development of China’s shadow banking system, its impacts on economic development is growing. Trust, financial market, for example, by the end of 2012, the entire amount of funds managed by the trust industry has nearly 7.47 trillion Yuan, the total assets of the trust industry has surpassed the insurance industry,which made it the second largest financial services industry after the banking industry. In fiscal 2013, the balance of Commercial bank financial products nearly 11 trillion Yuan, which makes it the second-largest wealth management market inferior to the trust industry in China’s wealth management market. This shows that China’s shadow banking system has occupied an increasingly important financial market share.Shadow banking system has played a positive role in China’s financial deepening, and other aspects of a wide. But it is highly correlated with the commercial banks, with the credit creation function and the lack of supervision; all this makes it has intervene to monetary policy objectives, tools and other transmission mechanism. In addition, it is more engaged in highly leveraged transactions, forming a complex chain of credit and more easily lead to systemic risk. Inevitably, it presents a new challenge on China’s monetary policy and financial stability. Starting from the credit creation function of the shadow banking system, this article based on a comprehensive analysis of the basic theories of its impact on Chinese monetary policy and financial stability. Around various aspects of monetary policy transmission and financial stability, through empirical analysis, we studied the degree of the impact on the objectives, tools, transmission mechanism of monetary policy and financial stability, which comes from shadow banking system.Conclusions of the article:the development of shadow banking system dose generate different degrees negative impact to the formulation and implementation of China’s monetary policy on various aspects, so reduce financial stability. Meanwhile, the rapid pace of economic development, an increase in the money supply, as well as a stable financial environment will contribute to its development. Faced with the challenges brought by the development of shadow banking system, we should improve China’s monetary policy system; adopt targeted measures to enhance the stability of the financial system. Then accelerate the establishment of macro-prudential system for the shadow banking system’s regulation, development guidance and information disclosure in a better level.