Risk Spillover Effects Of Chinese Shadow Banking

Chinese shadow banking system has been rapidly expanded since 2009.It has now grown into a big 'Gray Rhino' of our country's financial system.The credit creation activities of shadow banking flood the financial market with large amounts of liquidity.With the financial instruments it employs performing their currency functions,shadow banking system causes the fluctuation in the total amount of money supply,thus increasing the difficulty of macro-control of monetary authority.Meanwhile,the property of regulatory arbitrage,high leverage,liquidity mismatch and maturity mismatch exacerbates the vulnerability of shadow banking system,resulting in financial risk accumulation.Since March 2017,consecutive policies have been introduced to regulate shadow banking products.At the beginning of 2018,Yi Gang,the deputy governor of Chinese central bank,pointed out that shadow banking system should be incorporated into our macro-prudential policy framework.Obviously,shadow banking risk is attracting more and more attention from Chinese regulatory body.It is extremely urgent to break down the obstinacy existing in the operation of Chinese shadow banks.In this context,it is of great theoretical and practical significance to study the risk spillover effects of shadow banking on Chinese financial system.Chinese shadow banking refers to the products,institutions and markets outside the formal financial supervision system that replace and complement the credit intermediary function of traditional commercial banks.After introducing the definition and analyzing the causes of Chinese shadow banking system,this paper divides it into three categories:shadow banks dominated by commercial banks,by non-bank financial institutions,and by informal financial institutions,and explains the operation mode and development process of these shadow banking business.Then by analyzing the changes in the balance sheet of commercial banks caused by the credit behaviors of various shadow banks,the paper discusses the monetary creation activities in shadow banking system.Theoretical analysis about risk overflow mechanism of shadow banking shows that cross-infection of shadow banking risk,along with risk spilling from shadow banks to the real economy and capital market will impact on the stability of financial system in our country.This paper applies a TVP-VAR model including three variables:shadow banking scale,monetary liquidity and financial system risk,to empirically investigate the risk spillover effects of Chinese shadow banking on financial system.In order to obtain the agent variable of financial risk,this paper constructs a 'financial system risk index'from macro-economic dimension,securities market dimension and financial institution dimension.After calculation,this paper finds that the overall risk of Chinese financial system is in the state of decline,rising and falling in 2009.1-2010.2,2010.3-2016.1 and 2016.2-2017.12,respectively,reaching its highest level in 2016.1.The following conclusions are drawn from the empirical results of TVP-VAR model:(1)In the short term,shadow banking has added benefits to financial institutions,and it has made up the financing gap of real enterprises,thus driving the aggregate demand of the society,which hide potential financial risks under the 'shadow'.Strict financial regulation policies after 2017 are beneficial to the early exposure of shadow banking risk.(2)The risk spillover effect of shadow banking is hysteretic and time-varying.The delayed risk spillover effect of shadow banking has been emerging since 2010.6,reaches its maximum level in 2012.5,then weakens in an increasingly stringent regulatory environment,and strengthens again after 2016 because large funds circulate meaninglessly in financial system and break away from the real economy.(3)Shadow banking can significantly affect the amount of liquidity in the economy,and it can interfere with the role of monetary policy intermediary indicators in the absence of supervision,thus strengthening its risk spillover effect.Finally,this paper puts forward some policy suggestions to prevent and control the risk of shadow banking system of our country,hoping to promoting financial innovation to better serve the real economy under the premise of holding the bottom line against systemic risk.