Research On The Regulation Of China's Shadow Banking

Shandow Banking System is a system formed by a group of business,which is like traditional banking business that is credit intermediary business of credit conversion,term conversion and liquidity conversion,but is lack of regulation relative to traditional banks,and is lack of direct and explicit liquidity support and credit protection from the government.China's Shandow Banking System include all kinds of business and involve different types of business.Some kind of Shandow Banking is operated by institutions with financial licenses,but some kind of Shandow Banking is operated by institutions which are not financial institutions,and some kind of Shandow Banking is operated by institutions which are not only without financial licenses,but also in question.China's Shandow Banking from the narrowest sence is a system formed by a group of business,whose institutions have financial licenses and which is closely linked with traditional banking business but lack of regulation,mainly including money market funds,asset securitization and part of the financial business.There are four features of China's Shandow Banking:first,the institutions have financial licenses;second,the business has already been in financial system and is not emerging business;third,the business is closely connected with traditional banking business;fourth,business will be interrelated and form a system.The root cause of China's Shadow Banking is the long term financial repression.On the one hand,huge corporate financing needs cannot be met,on the other hand,residents' urgent investment demand also cannot be met.In this context,the emergence of Shadow Banking has inevitability,as it has played an active role in correcting financial repression and improving market efficiency.However,the restrictions on shadow banking in China is extremely strict at present,and shadow banking business has not been fully developed.Though that has controlled risk,it sacrifices efficiency.Then,China's shadow banking regulation should also be reformed.All business cannot be simply or rudely restricted.Supervision measures should be established according to the characteristics of different shadow banking operations to guide shadow banking to healthy development.Of course,shadow banking cannot be allowed to develop without supervision in order to avoid the damage to society caused by a great deal of financial risk,and the theoretical analysis must go ahead of practice.So,this paper first studies the sources of shadow banking through logical deduction and theoretical analysis,and then discusses the feasible regulatory measures.This paper also does empirical test for business that is easier to obtain for the data.It is found that China's Shadow Banking has positive significance.It provides a kind of investment and financing channels which can improve the efficiency of the financial system,provides investors with the opportunity to obtain a higher expected rate of return,and provids conditions for banks to improve their liquidity and increases their expected returns.In the same time,China's Shadow Banking also has potential risks.It increases the degree of information asymmetry in the financial system,may give investors a higher risk with lower expected returns,and provids the conditions for financial institutions to transfer,conceal and cover risks.For money market funds,the main form of business is "Baby Kind Money Funds".It is found that the closer the relationship between underwriting agencies and issuers,the risker the "Baby Kind Money Funds",which implies internal collusion.For asset securitization,it seems that it can help banks to resolve liquidity risk,and even allow investment strategy back to Pareto optimal,but it makes the liquidity risk and credit risk incompatible essentially.For financing business,the financial products business of "funds pool-asset pool"can hide non-standard assets,and the blind expansion of the pool of funds may lead to Ponzi scheme;the new financial management plan and direct financing tools can replace financial products business,but it also has potential risk,and it may make market breakdown if being free.In the regulation of China's Shadow Banking,the concept of "correct guidance and rational development" should be established on the whole.As to the financial market,its effectiveness should be improved and security measures should be strengthened.Publicity and education are good manner to enhance the risk awareness.Insurance system can be introduced to absorb part of the loss of investors.At the same time,it should also increase the financial market statistics research trying to establish a risk prediction mechanism.For banks,efforts should be made to improve the quality of liquidity funds.The regulatory role of the core level of capital adequacy ratio should be strengthened.And the sources and duration of bank funds should be care.For money market funds,it is important to strengthen the supervision of the cooperation between banks and fund companies,preventing commercial banks from transferring risky assets through fund companies,especially when the banks and the fund companies are of the same group.For asset securitization,the credit enhancement phenomenon should be eliminated,and the balance-sheet assets and off-balance-sheet assets should be strictly distinguished.To prevent the balance-sheet assets out of the sheet and to prevent off-balance-sheet assets into the sheet.For financing business,regulation should be performed from both macro and micro level.On the macro level,the supply of financial management plan and direct financing tools should be coordinated.At the micro level,the charging standards of financial management plan should be in regulation.