The Credit Creation Of Shadow Bank

Since2010, the scale of China’s shadow bank grows rapidly. Chinese Academy of Social Sciences released the " financial regulatory reporting of2013," which said at the end of2012, the size of China’s shadow bank reached20.5trillion yuan, accounting for40%of GDP.The risk of shadow bank catches everyone’s attention. So more and more papers concern the risk and regulation of shadow bank, but neglect that shadow bank may affect the money supply. In fact, if shadow bank can make credit, it may have great effect on the financial market and the monetary policy. Only through researching the operating mechanism of the shadow bank and its impact on the money supply, can we make more targeted policy recommendations.This paper analyzes the credit creation of American shadow bank on the framework of credit creation of traditional commercial banks and makes the conclusion that the shadow bank can create credit without traditional commercial banks or enhance the commercial banks’ ability of creating credit.In developed countries, the core of shadow banking is securitization. However, the financial market is not perfect in China. Bank and Trust Cooperation Financial Products are the best representation of the shadow bank. The "pool" which formed through the cooperation of bank and trust is the basis of securitization. This paper takes bank and trust cooperation financial products as an example to explain the mechanism of credit creation of shadow bank. I put the bank and trust cooperation financial products into four categories and analyze the impact of different categories make on the commercial banks’’balance sheets. I find that only the products concerned the existing loans will enlarge the money supply and the bank and trust cooperation financial products will increase Ml and M2. Furthermore, the M2will greater affected than Ml because of the increase of Ml, quasi-money and the impact of asset securitization. Through the statistical model I proof the previous theory assumptions, and make relevant policy recommendations.