An Empirical Analysis Of The Domestic Shadow Banking System’s Credit Creation Function

In recent years, the outbreak of the financial crisis in many countries has aroused great interest for the shadow banking system. States are beginning to realize the rapid expansion of the shadow banking system will produce tremendous impact on country’s financial system, and its growth rate is difficult to control.So governments have started to strengthen their supervision of shadow banking system. Derived as development of the traditional banking system, shadow banks are the result of commercial banks pursuit of innovative products and services. It has its positive influence, but its negative impact is also very obvious. National financial professionals found that the reason why shadow banking has such destructive power is that it can create credit. Once the credit chain is broken, the crisis will appear. The purpose of this paper is to clearly define the shadow banking and to analyse how the shadow banking works. The text first gives the introduction and development of the domestic banking system, the concept of shadow banking analysis, and then analyse credit creation mechanism. The shadow banking system is split into three parts:the domestic banking system balance sheet business, non-deposit-taking financial institution systems and a wide range of folk three categories of financial products shadow banking system. We imply the empirical test through the VAR model and analyze the response of M2to bank financial products, the scale of trust assets, private equity fund size and the size of the money market fund which are the most typical shadow banking products. At last with the use of the outcome of the empirical test, we give the supervision regulatory suggestions in the financial institutions, financial markets and international cooperation.