Shadow Bank's Credit Creation And Risk Investigation

Since 2010, the scale of China's shadow bank grows rapidly. Chinese Academy of Social Sciences released the "financial regulatory reporting of 2013", which said at the end of 2012, the size of China's shadow bank reached 20.5 trillion yuan, accounting for 40% 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 shadow bank on the framework of credit creation of traditional commercial banks.On the one hand, financing banking institution, asset securitization institution and repurchase agreement constitute a complete credit chain and create the broad liquidity financial products with monetary attributes within the shadow bank. On the other hand, with its characteristics of continuous innovation and lack of supervision, shadow bank has improved the money creation ability of traditional credit market and indirectly enhanced the credit creation ability of traditional commercial banks.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 M1 and M2. Furthermore, the M2 will greater affected than M1 because of the increase of M1, quasi-money and the impact of asset securitization. At last,this paper uses deductive reasoning to put forward the applicable regulatory policy through summary analysis of the risk of the shadow banking in our country.