The Impacts Of Shadow Banking System On China's Monetary Policy Objectives

The concept of shadow banks was first put forward in 2007,by Paul McCulley who is the executive director of USA Pacific Investment Management Company.Then the shadow banks received widespread attention in the financial industry.At present,the concept proposed by the Financial Stability Board in 2011 is the most authoritative,which defines shadow banks as the credit intermediary system which is outside the banking supervision system,may cause systemic risk,regulatory arbitrage and other issues,including all kinds of relevant institutions and business activities.The rapid development period of China's shadow banks began at the beginning of this century,has been about ten years so far.Especially after the global financial crisis of 2008,affected by the rate of return on investment and safety factors,shadow banking business such as bank financial products,trust products and private lending shows a blowout.The development of shadow banks has both positive and negative effects on China's economy.On the positive side,it extends the financing channels for financial markets,especially meets the financing needs of small and medium sized enterprises,and promote their development.In addition,it promotes financial innovation and accelerates the reform of financial market.On the negative side,the potential risk of shadow banks is likely to have an impact on the financial market,increases the maturity mismatch risk,default risk,systemic risk and regulatory pressures,and its"credit creation" function may affect the realization of monetary policy objectives in China.Monetary policy is one of the important means of the government to regulate the economy.The failure of monetary policy will seriously affect the government's macroeconomic regulation and control of the economy.This paper reviews the theory of monetary policy,according to the transmission mechanism of monetary policy,analyzes the possible influence that shadow banks may have on China's monetary policy from three angles.One is the impact on the monetary policy tools,the shadow banking system is outside the view of the regulators and difficult to be estimated accurately,may afFect the effectiveness of re-discount,window guidance,open market operations and other means of regulation,so that the difficulty of monetary policy adjustment continues to increase.Two is the impact on the monetary policy objective,the shadow banks have been pumping a large number of liquidity into social,weaken the regulation effects of monetary base,reduce the stability of money multipliers,and weaken the correlation between money supply and the ultimate goal.Three is the impact on the monetary policy transmission channel.The shadow banks have weakened commercial banks' principal status during transmission,reduced the controllability of monetary policy transmission direction.Then,this paper makes the empirical study on the influence of shadow banks on the intermediate target,the credit channel and the ultimate goal of our country's monetary policy by establishing SVAR model.Refer to the definition of the Financial Stability Board,this paper defines the shadow banks from a broad perspective,those financial entities and activities which provide the credit activities by non-bank credit channel,can be incorporated into the category of shadow banks.Because the shadow banking system is huge and complicated,and the data which constitutes of it is difficult to collect,so this paper uses the indirect method to calculate the scale of shadow bank,that is to use the social financing scale to deduct bank credit scale as a proxy for the shadow bank scale.In addition to that,we select the industrial added value,CPI,M2 and new bank loans as proxy variables for GDP,the rate of inflation,money supply and credit scale respectively.The results show that,China's shadow banking system has a neutral impact both on economic growth and price stability,the effect of money supply as the intermediate target of monetary policy is weakening,the credit channel is still an effective policy transmission channel.Basing on the analysis above,this paper puts forward conclusion and relevant policy proposals.Monetary authorities and regulators should view the development of the shadow banks objectively,not only to recognize its positive effect,but also to guard against some bad influence of the development of the shadow banks,then take active measures to cope with it.On the one side,regulators must strengthen the monitoring and guidance of shadow banks.On the other hand,the monetary authorities should improve the relevant policy variables:the first is to improve the intermediary target of monetary policy,pay more attention to the total social financing indicators and interest rate intermediate index.The second is to improve the tools of monetary policy,from the quantity control to control prices.The third is to improve the transmission mechanism,strengthen the supervision of commercial banks and provide financing convenience for small and medium enterprises.