Research On Risk Management Of Shadow Banking For Commercial Banks

The concept of Shadow Banking System came into public view with the globalfinancial crisis in2008. While all the traditional commercial banks were trying tomake financial innovations during the past decade, the shadow banking system ofChina grew dramatically. It has been common practice for commercial banks toconduct many of their transactions in ways that do not show up on their conventionalbalance sheet accounting and so are not visible to Chinese government regulators,which brings potential risks to both the bank’s operations and the government’smonitoring. Based on current situation, this thesis is to make an in-depth analysisabout the risk management of Chinese Shadow Banking System with the knowledgeof Management and Finance science.The contents of the research are the following,First of all, this thesis made a comprehensive description of Shadow BankingSystem in China. The research discussed about typical business as Bank and CreditCooperative financial products and Entrusted Loan in detail, trying to figure out theproblems occurred in practice and the potential risks.Second, the research reserved29evaluation criteria which would make a majorimpact on the risk management of Shadow Banking System according to the currentsituation and the four principles in selection of the evaluation criteria. Furthermore,the research established a two-dimensional evaluation system for both the externalenvironmental risk and the internal operational risk.Third, based on the actual business data of the Chinese shadow banking systemfrom2005to2012, the research take entropy method and analytic hierarchy processto set the weights, and then evaluate the risk of external environment and internaloperation respectively.Last, the research used Model Logit to analyze the results and established theRisk Warning System for risk management of both the external environmental riskand internal operational risk. Summary are the reasonable advices for properregulatory to the development of Shadow Banking System. The specific conclusions are as follows:First, based on the risk assessment result of external environment’s impact onshadow banking system from2005to2012, the research has proved thatmacroeconomic financial risk is the main cause for the final differences among thetotal score E. Furthermore, growth rate of social financing scale E13, growth rate ofsavings E14, and growth rate of loans E15are the major factors for the relative lowerscores. From the evaluation of the rest factors we could conclude that the Chinesefinancial market has seen dramatic fluctuations in recent years. Integrated with thefact that the potential risk of social financing and credit scale is in a steady growth, itis believed that we should take effective methods to improve the ability to resist therisk from external environment.Second,based on the risk assessment result of internal operation from2006to2012, the risk profile of internal operation of shadow banking transactions in therecent three years is better as a whole than that of the years from2006to2009,indicating that the supervisory authority has started to emphasize the risk managementof the internal operation of shadow banking transactions in recent years. Inaccordance with the further analyses of the assessment result, the increasing tendencyof total scores and the changing mode of credit risk are basically the same. And thecredit risk is the main cause for the final differences among the total scores. Capitaladequacy ratio, non-performing asset ratio and provision coverage all present anannual increase, indicating that the credit risk index of shadow banking transaction ispromising as a whole and the transfer risk of credit risk is also controllable.Third, conduct logistic regression analysis in accordance with the externalenvironment risk assessment result of shadow banking transactions, select fiverelevant indices with the vulnerability of external environment, i.e. growth rate ofconsumer price index, growth rate of social financing scale, growth rate of savings,growth rate of loans and growth rate of fixed-asset investment, decide the centralfiscal deficit ratio in central fiscal financing risk, construct external environment riskpre-warning model of shadow banking transaction of commercial banks and thenmake a fitting design sketch and curve prediction figure. The result showsinsignificant differences between actual value and estimated value, with about90%ofprecision rate, which further testifies that our estimation has been fulfilled since thefactors adopted by the thesis have imposed significant effects on constructing the riskpre-warning model of external environment. Forth,The research select capital adequacy ratio O11, the proportion ofoff-balance-sheet financing scale O14, the growth rate of off-balance-sheet Financingscale O15, the proportion of bank-trust cooperation financial products O16, currentratio O21, loan-deposit ratio O22, RMB deposit reserve ratio O25, return On capitalratio O33as the most significant factors to conduct logit regression analysis and thenestablish the risk pre-warning model. The following data test prove that despite theresidual curve waved occasionally, the accuracy of the risk pre-warning model hadsuccessfully maintained above80%, which further testifies that our estimation hasbeen fulfilled.