Comparative Research Of Characteristics And Risks Of The Shadow Banking System In China And The United States

Shadow banks system is financial intermediaries and entities that conductmaturity, credit, and liquidity transformation without regulation and lightly regulation.The development of shadow banks in United States stems from self-innovation inbusiness model to cope with intensive competition. The rapid growth of the shadowbanking system since the1970s changed the nature of financial intermediation in theUnited States profoundly, including financial companies, assets-baked commercialpaper(ABCP), structured investment vehicles, credit hedge fund, money marketmutual funds, securities lender, specialized financial companies, governmentsponsored enterprise, which informed a series risk chain integrated to each otherclosely. The assets of shadow banking in United States reached23trillion, whichaccounted35percent of the asset size around the world, fell from44percent in2005.The outbreak of subprime mortgage crisis caused great concern of internationalcommunity. By contrast, Chinese shadow banking system is developing quickly,especially the wealth management product, trust, pawn shop, guarantor, small lenders,underground bank, the internet financial products. The paper introduce the variouscompositions of Chinese shadow banking system in detail, such as the developmenthistory, asset size, development reasons, business models and regulationcharacteristic. On the basis, the paper then makes a detail comparison betweenChinese shadow banking system and American shadow banking system ondevelopment reasons, business models, cash flow direction, regulation models, thenmake a deep comparison of their own risks. It is concluded that Chinese bankingsystem is more similar the American shadow banking system in1970s, is fundamentally driven by financial deepening reform and market-based reform ininterest rates, also reflect the difficulties in financing of SME. The development ofChinese shadow banking system is still at the early stage, in other words, at the1.0version compared with the American shadow banking system, don not have thehighly leveraged risks, complex financial derivatives, knock-on effects, andaccumulated inner systemic ricks. But the potential risks surge from exposure to localgovernment financing vehicles and a slowing real estate sector, the liquidity pool ofwealth management product is another risk source. All in all, we should deal withChinese shadow banking system more rationally, we cannot totally ba n thedevelopment of Chinese shadow banking system, just because subprime crisis, whatwe should do is to lead it develop in a healthy way, to promote the financialstability and facilitate financial innovation at the same time.