The Influence Of Chinese Shadow Banks On The Fragility Of Commerical Banks

Since the 2008 financial crisis, all kinds of organizations pay attention to the shadow banking system. As an important product of financial innovation, shadow banks have connections with commercial banking system, On the one hand, the development of shadow banks prompted commercial banks to change its original business model, improved the bank’s own income level; On the other hand, because of its characteristics of high leverage, low transparency, the maturity mismatch, shadow banks magnify the risks in the banking system. In this paper we treat the problem of China’s shadow banks dialectically, theoretically analysis the impact mechanism of shadow banks on the fragility of Chinese banking system, and through empirical analysis to explore the influence of shadow banks on the fragility Chinese banking system.First of all, this paper reference the method of Li jian jun(2010) and Feng si xian,Ju wei wei and Li si jia(2014) as well as the principle of the corresponding GDP need to have a certain scale of credit to support, then measure the shadow bank scale of each province in China in past years. In 2013, the shadow bank scale is 17.12 trillion yuan, increased by 235% compared with 2005. The top five provinces are Zhejiang province (2.2 trillion yuan), Jiangsu province (2 trillion yuan), Shandong province (1.5 trillion yuan), Guangdong Province (1.4 trillion yuan), Beijing city (0.93 trillion yuan).It also shows that, in the eastern regions, the shadow bank scale is greater than the central and western regions in China.Secondly, with the Z values (If Z values is greater,then risk of bank failure is bigger, the degree of fragility is high) as measure indicators of bank fragility, respectively from the listed banks and city commercial banks to analysis the influence to of shadow banks on our banking fragility. By the empirical analysis, we have the following conclusion:(1) the shadow banks and listed banks fragility significantly positive correlation, with the expanding of the shadow bank scale, because of its characteristics of high leverage, low transparency and maturity mismatch, it will expand the liquidity risk of commercial bank then impact the fragility of the banking system. The control variables, the size of bank, capital adequacy ratio and the bank fragility has a significant negative correlation, larger banks may make the business strategy more conservative and are more limited by regulators. The capital adequacy ratio is higher, the lower the risk of bankruptcy and stronger ability to resist risks, finally the degree of fragility is the lower. As the control variables at the macro level, the rate of GDP growth and M2 growth, real interest rate and bank fragility all have a significant positive correlation. While the economy is overheating, the bank risk will continue to accumulate, the volatility of asset return is higher, as a result, the bank’s management will bring potential risks. Loose monetary policy is easy to make the excess liquidity in the market, commercial banks will blindly expand its credit, so that the risk of bank credit increased; the improve of the real rate directly increases cost the enterprise financing, thus they may not be able to repay on time, then the bank fragility will increase accordingly. (2) The shadow banks and city commercial banks fragility significantly negative correlation, with the expanding of the shadow banks, it will improve the stability of city commercial banks. City commercial banks provide credit for small and medium-sized enterprises through the shadow banks. And support the development enterprises, in return it can promote local economic growth, and because they have more information of local enterprises, the information asymmetry in the lending process can be deceased, enhancing the quality of loans and the operation profit, leading to a sustainable management and development.Finally, according to the empirical test results and the practical situations of China’s shadow banks, this paper puts forward the corresponding policy recommendations:for example, make shadow banking fully play the positive role in the Midwest region; appropriately to guide the cooperative development between shadow banks and city commercial banks.