Research On The Risks And Prevention Countermeasures Of China’s Shadow Banking System

As an important way of social finance and a innovative way for banks and otherfinancial institutions to avoid regulations, the shadow banking system in Chinacontinue to grow in recent years. The development of Chinese shadow bankingsystem has its rationality. But with the rapid expansion of the scale, its risks to thefinancial system is gradually revealed. Considering the global financial crisis causedby the subprime crisis, regulatory authorities and the public are concerned about therisks of Chinese shadow banking system.Firstly, this article gives an theoretical overview of the shadow banking systemfrom an international perspective, and then to define the scope of China’s shadowbanking system and analyze the current development situation of the maincomponents in China.This article argues that at present the development of China’sshadow banking system is at a primary stage; the structure is relatively simple; andthe degree of complexity of the service is not high.Additionally, the article comprehensively summarizes the possible risks of theshadow banking system in China by the combination of qualitative and quantitativeanalysis.Through the research,this article holds that because of nature of businessloans， China’s shadow banking system is severely affected by the target assets.During the economic downturn, the value of the target assets fall or financingcorporate defaults. Then it will increase the credit risk and liquidity risk of theshadow banking products. In addition, due to the nature localization unclear and theimperfect laws and regulations, China’s shadow banking system also has cash risk,operation risk, reputation risk, legal risk, etc. Through the analysis, the article holdsthat the degree of risks of China’s shadow banking system is not as serious as theUnited States, and the macroeconomic environment and credit risks are the mainrisks of China’s shadow banking system, while they are controllable.Finally， this article puts forward some suggestions on the prevention of therisks of China’s shadow banking system.Although there are some risks on the development of the shadow bankingsystem, it represents the trend of China’s financial development. Taking into accountthe positive role of the shadow banking system in adjusting liquidity, enhancingprofitability, promoting the diversification of financial products, improving the supply of credit intermediary, meeting the needs of investment and financing, andcorrecting regulatory lags, we should rationally treat its development.As long astaking reasonable risk prevention measures, correctly understanding the relationshipbetween financial innovation and financial supervision, through reasonableinnovation, rational investment and effective supervision, it will be able to guardagainst risks of the shadow banking system and promote the healthy development ofChina’s financial sector.