The Mechanism Of Shadow Banking System And Its Impact On China’s Economy

After the financial crisis of 2008, the shadow banking system has been widely discussed by plenty of scholars and institutions. In the United States, the shadow banking system is integrated. In the system, securitization is the key element, and the market-based financial intermediaries such as broker-dealers、SIVs、MMMF cooperate with each other and perform credit intermediation as the traditional banking system does. In contrast, the shadow banking system in China has not been fully developed, and commercial banks still play the leading role, other non-bank institutions like trust company、private equity are in a subordinate position. The cooperation between trust and bank is the main shadow banking business in China.Although the largely unregulated shadow banking system played a major role in the recent financial crisis, it did promote the developments of financial systems and economics of the western countries in the past decades. In China, the rise of the shadow banking system is somehow the response to the urge for capital from the economy itself. Therefore, with proper regulation and guidance, the shadow banking system will benefit the reform of China’s financial system and the efficiency of economy.Apart from the unique operation of itself, the shadow banking system has its ability to supply credit outside of the traditional banking system, which in the end will have an influence upon the implement of monetary policy. In this paper, an empirical analysis is used to study the impact of China’s shadow banking system to its monetary policy and real economic outcomes.