Mechanism Of The Shadow Banking System Risk And Conduction

The U.S. subprime mortgage crisis and the global financial crisis have raisedwide concerns related to “shadow banks”.“The shadow banking system” includes aseries of non-bank financial institutions. This system is growing rapidly in countrieslike the United States, and playing an important role in the whole financial system.The shadow banking system promotes credit expansion and financial innovation,while it has great risks inherently. By theoretical analysis, literature review and casestudy, this article illustrates the risk origination, accumulation and transfer of theshadow banking system. Furthermore, it discusses about the regulation of shadowbanking system.The risks in shadow banking system originate from its financial activities andoperational patterns. In the credit intermediation process, various risks such asliquidity risk, credit risk, and price risk have accumulated gradually inside in system.Then the risks transfer to other places in several ways. There are close risk relationsamong shadow banks themselves, shadow banks and regulated financial intuitions,which will cause direct, financing and indirect risk transfers. The inward and outwardrisk transfer of shadow banking system will give rise to serious systemic risk,influencing on the financial stability of a country even the world. In order to keep safedevelopment, based on the macroprudential policy framework, effective financialregulation should focus on preventing systemic risk, supervising risk accumulationand risk transfer of shadow banking system, so as to maintain financial systemstability.