The Risk Spillover Effect Of Shadow Banking On Local Government Debt

In recent years,as China's economic development has entered a new normal,the focus of macroeconomic regulation and control has also shifted from "stable growth" to "de-leverage and risk prevention." Shadow banking and local government debt are two important risk hazards that need to be taken seriously.Their scale has risen rapidly in the past decade,which has promoted economic development on the one hand,but also accumulated a large number of risks on the other hand,threatening the stability of the financial system.China's Four Trilliondollar Plan to stimulate the economy in 2010 has created a capital supply-demand relationship between shadow banking and local debt,and the relationship between them has become increasingly close.Based on this background,this paper studies the spillover effects between shadow banking and local government debt.This paper mainly discusses the spillover effect of shadow banking on local debt from the perspective of combining theory with evidence.On the theoretical side,through the introduction and analysis of the specific manifestations of the shadow banking associated with local government debt,it is clear which kind of China's shadow banking may be related to local debt.Combined with the theoretical analysis and other scholars' research,the shadow banking business is divided into six categories: securities,trusts,investment,diversified financial services,private finance and Quasi-municipal bonds.Then in the empirical analysis,in order to study whether the shadow bank's spillover effect on local debt exists,this paper selects the 19 sets of daily stock price(index)yields from the beginning of May 2011 to the end of July 2017 and incorporate them into the corresponding category according to the division criteria of the theoretical part.Then,the GARCH model is established to calculate VaR and CoVaR,and finally,the ?CoVaR that measures the risk spillover size and the %CoVaR that measures risk spillover intensity are obtained.The empirical results show that China's shadow banking has a large negative spillover effect on local bonds,that is,when shadow banks are in a state of risk,the risk loss of local bonds will increase.Except for the Quasi-municipal bonds,the average spillover intensity of the other five types of shadow banking business is between 25% and 31%,which is a relatively high level.And the investment business has the largest spillover,followed by trust and private finance,and the diversified finance is relatively small.After the conclusion is reached,the results are explained in conjunction with the theoretical analysis.The innovation of this paper is that in the field of risk management research,scholars mostly study the risk of local government debt and the risk of shadow banking independently,or study the risk transmission within the financial system.At present,the research on risk transfer within the financial system is mostly the study of risk transfer and spillover effect between shadow banking and commercial banks.There is little literature on the risk transfer between shadow banking and local debt.Both of them can be considered as belonging to the financial system,but to a certain extent also reflect the risk transfer between the financial system and the fiscal system.Therefore,this paper attempts to study the risk spillover between the two through theoretical and empirical methods,which helps to explain the nonindependent view between financial risk and fiscal risk,and also enriches the research system of risk management.