Analysis On The Credit Creation Mechanism Of Shadow Banking System And Its Influence On The Monetary Policy Of China

The shadow banking system in China has enjoyed a great growth recently. The number of shadow banking institutions as well as shadow banking products has increased dramatically in China. Given the role played by shadow banking system in the U.S. subprime mortgage crisis and its high leverage ratio and risk level, how to carry out appropriate regulations to avoid the financial crisis is of great significance.This paper aims to expound the credit creation mechanism of shadow banking system and to analyze the impact made by shadow banking system on the monetary policy in China. To find out how the increase of shadow banking system will influence the monetary policy, this paper looks into the problem in two ways of interest rate transmission mechanism and credit transmission mechanism respectively.The innovation of this paper is the combination of the credit creation mechanism of shadow banking system and the monetary policy. It is not the big scale of shadow banking system that will have a great influence on the monetary policy, but the credit creation mechanism of such a big scale of shadow banking system, in which case, analyzing its credit creation mechanism before its impact is of necessity. What might be improved of this paper is the data chosen in the empirical analysis part. Considering the lack of accessibility to the data on total issue size of shadow banking system, we turn to use the monthly data of bank financing and trust products instead. If we could find the data of shadow banking system’s total issue, the outcome of the empirical analysis part would be more practical.