A Study On The Impact Of Shadow Bank Development On Commercial Banks

The functional definition of shadow banking is diffierent from the regulatory one. And the analysis of the impacts of shadow banking on commercial banks and macro-economy should be based on its credit intermediary function. The development of shadow banking weakens the indirect financing monopoly in two ways, facilitating financial disintermediation and promoting interest rate liberalization, which impels commercial banks to develop indirect financing through internal disintermediation, achieved by financial mixed cooperation. Consequently, commercial banks’business model gradually changes from the original pattern of indirect financing monopoly to the new improved pattern, where indirect and direct financing exist and both play significant roles. In the meantime, the increasingly tight relevance between shadow banking and commercial banking significantly enhances the commercial bank’s credit risk. And the obvious pro-cyclicality of shadow banking also increases financial systematic risk.The results of macro stress testing models, based on different types of commercial banks, show that shadow banking has significant impacts on commercial banks’ credit risk level, and that once the economic downturn exposes shadow banking systematic risk, credit risk situations of different types of commercial banks will deteriorate significantly. Therefore, to cope with the development of shadow banking, commercial banks should enhance risk management when improving their business models.