The Impact Of Shadow Banking Scale On Regional Financial Stability

In recent years,The shadow banking of China is becoming increasingly prominent in the capital market.A growing number of scholars have begun to study shadow banking.As shadow banking provides an approach for financing which has played an important role in promoting the development of the real economy.Furthermore,plenty of regulators realize that the shadow banking brings higher leverage which leads to higher risks in capital market.Both the 90s financial crisis of Southeast Asian and the US subprime mortgage crisis have a close relationship with shadow banking.Therefore,it is of great theoretical and practical significance to study the influence of shadow banking for regional financial stability in order to put forward corresponding regulatory for recommendation.This paper can be divided into three sections.The details are shown as below.Firstly,This paper sorts out the relevant literature and studies the theoretical basis of shadow banking and regional financial stability.It defines the definition and scope of shadow banking.At the same time,it analyzes the causes,characteristics,and supervision of shadow banking.The paper deliver the definition between theory of financial stability and regional financial stability.It also displays the effects of shadow banking on financial stability.The shadow banking has main impacts on financial stability by promoting economic growth,weakening monetary policy and triggering systemic risks.Secondly,the paper analyzes and compares the methods with measuring the scale of shadow banking which calculate and measure the scale of shadow banking in 31 provincial administrative regions.According to it,there are 18 indicators for a regional financial stability measurement system constructed.Meanwhile,the weighted entropy method is applied to calculate the index of regional financial stability index for 31 provincial administrative regions in China.Finally,the paper uses the 2005-2016 annual data of each province in order to do empirical analysis.The regional financial stability index(FSI)is the interpreted variable and the shadow bank size(Sbank)is used as the explanatory variable.There is a set of representative control variables selected.They are real estate price(H),fixed asset investment price index(P),growth rate of currency supply(M2g),the asset-liability ratio(R)of state-owned enterprises and the IVA of industrial added value(IVA).All of them are utilized for establishing a panel data fixed-effect regression model to analyze the effects of shadow banking size with regional financial stability.The empirical results show that the increase of shadow banking in China has a significant positive impact on financial stability at moment.In order to examine the robustness of the basic test results and the variances of regions,this paper divides the average GDP per capita of 31 provinces in 2005-2016 into four groups:high-income,medium-high income,low-middle-income and low-income provinces.An empirical study indicates that the increasing size of shadow banking will have a negative impact on regional financial stability for the high-income as well as middle-and high-income provinces.However,as for middle-income and low-income provinces,the increasing size of shadow banks will improve significantly stability of regional finance.All above prove that the effect of shadow banking scale on financial stability is an "U"-type model which it is a threshold effect.When the size of shadow banks is relatively small that it will result in encouraging development so as to conducive to improving financial stability.Whereas the expansion of the shadow banking scale will have a negative impact on financial stability during the development reached a certain level.Therefore,we should strengthen the supervision and provide guide of development of shadow banking.Moreover,we should also promote interest of market as well as set up sound financial laws and regulations.