The Impact By Shadow Banking To Stability Of Banks In China

With the rapid economic development, shadow banking is growing drastically in recent years, becoming an indispensable element in domestic financial markets. Shadow banking is the product of financial innovation, which has extremely close relationship with banks and other traditional financial institutions. Furthermore, shadow banking is growing to be more and more matured in China; it has a high operating leverage, which is usually not supervised by regulators. As a consequence, shadow banking has brought tremendous negative impact to domestic financial market, especially to traditional banking system. Therefore, the study of impact brought by shadow banking to banking stability is of great significance to domestic financial market.This paper analyzes the reality of domestic shadow banking system. The shadow banking mainly includes unobserved loan, trust loan and entrusted loan. Unobserved loan has a dominant position, which includes private loan, individual and private property owner loan. Financial stability indicators, which were stipulated by the Basel II, construct banking stability indicators. We use the indicators to analyze the stability trend level of 18 banks over the past more than ten years. Subsequently, the establishment of vector autoregression (VAR) model studies the impact of banking stability brought by unobserved loan, trust loan and entrusted loan. It is found that their influence usually lags, and the unobserved loan contributes the largest effect.Finally, according to the characteristics of the shadow banking system and its impact on the stability of the bank, I think we should strengthen the supervision of shadow banking, establish effective regulatory mechanisms, ensure the stable development of the bank, in order to achieve healthy development of the entire financial system.