Research On The Impact Of The Shadow Banking System To China’s Monetary Policy

The shadow banking system mainly refers to the system which is free of the direct control by military policy and finance supervision, but playing with the traditional commercial banks the same function of credit creation. In 2008, the shadow banking system led to the outbreak of the financial crisis. The crisis made academics surprised and attract they strong attention. People began to study the shadow banking system and regulatory measures, and try to reduce its risk.In recent years, with the development of China’s economic, banking system’s rapid expansion has become a problem that can’t be ignored. China’s financial system is not sound, so the shadow banking system is still at the early stage of development, mainly for supplying commercial bank financing function under the tight monetary policy. However, due to China’s monetary policy system is in a transition period, from direct control to indirect control, there are still exists some flaws and loopholes. With credit creation function and avoid the regulatory characteristics, the shadow banking system structure is complex, and unavoidably brought some impact to the China’s monetary policy.To study effects of the shadow banking system on monetary policy, we needs from three aspects, including the monetary policy objective, instruments and transmission mechanism. Through theoretical analysis and the establishment of SVAR model proved the ultimately conclusion:The shadow banking system hinders the effectiveness of monetary policy, especially reduces the testability, controllability and correlations with the ultimate goal of the monetary policy intermediate target, reduces the effectiveness of traditional regulatory quantity instruments and blocks the effective transmission of monetary policy.Shadow banking system not only have brought the risk of uncertainty to the effectiveness of China monetary policy and the real economy, but also exposed the existing drawbacks of monetary policy. Therefore, China must speed up monetary policy system’reform; improve the monetary policy objectives, tools and transmission mechanism. At the same time, promote market-oriented interest rate reform and finally improve the effectiveness of monetary policy to resist or control risks from the shadow banking system.