The U.S. Shadow Banking System And The Financial Crisis

Shadow banking system implemented the subprime mortgage which was based on credit default. This was the main reason for the financial crisis in 2008. The world began to realize that the collapse of the shadow banking system would be a huge hazard under the regulatory oversight. The shadow banking system was always free from the conventional regulatory system. Even the US who had the most developed financial markets also failed to establish an effective financial supervision system. From the main point of view, the shadow banking included asset sale institutions, structure of investment vehicles, investment banks, hedge funds, private equity funds and money market funds, etc.From the point of view of the issue of products, the shadow banking included asset backed commercial paper, secured debt, credit default swaps, asset backed securities, debt secured debt and cash secured bonds. Before the outbreak of the subprime mortgage crisis in 2007, the United States adopted a dual regulatory model. Regulatory gaps made the shadow banking system develop rapidly. Meanwhile, with the rapid expansion of the shadow banking system, the risk of agglomeration was increasing. The US regulatory authorities recognized the huge risk of the shadow banking system and started to change the traditional loose supervision idea.Shadow banking system regulatory arbitrage occured in the shadow banking financial cross business or the financial innovation derivatives trading process, such as the cooperation between trust and banking, the cooperation between securities and banking and the business dealings between parent and subsidiary financial holding companies. Three reasons led to induce the shadow banking regulatory arbitrage, such as regulatory vacuum zone, rule oriented policy and arbitrage regulatory blind area. In order to solve this problem, U.S. regulators had introduced principles oriented regulatory model and the "self-commitment" category of regulatory tools. In addition to this, the United States regulatory authorities should also clarify the scope of risk regulation as soon as possible and improve the transparency of the business. This approach could help to avoid the occurrence of risk arbitrage in financial markets.Drawing lessons from the United States, China should pay more attention to the improvement of the monetary policy adjustment and improve the accuracy and efficiency of the regulation. Our country should attach importance to the improvement of the way of supervision in order to guard against the risk of CIS cycle. Information disclosure and corporate governance structure are also very necessary. Specifically, the current stage of China's shadow banking system regulatory reform can start from the following six aspects: One is to build a framework for macro Prudential Financial Supervision; Two is to consolidate the micro prudential supervision mechanism; Three is to accelerate the process of marketization of interest rates and to open the control of bank deposit rates as soon as possible; Four is to improve the financial comprehensive statistical system to fill the data gap; Five is to improve the information disclosure system and the transparency of the shadow banking system operations; Six is to build a risk isolation mechanism and strengthen the shadow banking risk control mechanism.