
The Impact of Shadow Banking Risk on Systemic Financial Risk in China
- 1 Faculty of Arts and Social Sciences, University of Sydney, Camperdown, Australia
* Author to whom correspondence should be addressed.
Abstract
After the subprime crisis, China's shadow banking industry has expanded rapidly, becoming an important financing channel outside the traditional banking system. However, because it is not subject to the conventional regulatory framework, shadow banking has increased systemic financial risks while raising financial leverage.Inadequate regulation of shadow banking could lead to systemic financial risks in the financial system and jeopardize economic stability. This paper discusses the advantages and disadvantages of shadow banking and its impact on monetary policy. Meanwhile, this paper further elaborates on the importance of macro and macroprudential regulation, and at the same time proposes some solutions to further emphasize the importance of macro and macroprudential regulation, and suggests that regulators should strengthen the regulation of shadow banks activities, such as shadow banking, no longer jeopardize the financial system. Then, this study also suggests that the regulator should provide awareness of the risk of shadow banking for the borrowers or investors, especially trying to avoid those borrowers who are not able to repay the loan joining shadow banking institutions. When the risk of shadow banking system accumulates into a crisis, the regulator needs to respond in the first instance and identify timely contingency measures for that crisis. This will minimize the risk of shadow banking and increase the probability of China’s prevention of systemic financial risks.
Keywords
Shadow banking, systemic financial risk, financial system, macroprudential supervision
[1]. Si, D. K., & Li, X. L. (2022) Shadow Banking Business and Firm Risk-Taking: Evidence From China. Research in International Business and Finance, 62, 101729.
[2]. Pozsar, Z., Adrian, T., Ashcraft, A. B., & Boesky, H. (2010) Shadow Banking. Federal Reserve Bank of New York Staff Reports, 458, 3–9.
[3]. Allen, F., Qian, Y., Tu, G., & Yu, F. (2019) Entrusted Loans: A Close Look at China’s Shadow Banking System. Journal of Financial Economics, 133(1), 18–41.
[4]. Hsu, J. C., & Moroz, M. (2010) Shadow Banks and the Financial Crisis of 2007–2008. In Banking Crisis Handbook, 2, 39–56.
[5]. Chen, K., Ren, J., & Zha, T. (2018) The Nexus of Monetary Policy and Shadow Banking in China. American Economic Review, 108(12), 3891–3936.
[6]. Adrian, T., & Ashcraft, A. B. (2012) Shadow Banking Supervision. Annual Review of Financial Economics, 4(1), 99–140.
[7]. Allen, F., & Gu, X. (2021) Shadow Banking in China Compared to Other Countries. The Manchester School, 89(5), 407–419.
[8]. Plantin, G. (2015) Shadow Banking and Bank Capital Regulation. The Review of Financial Studies, 28(1), 146–175.
[9]. Buchak, G., Matvos, G., Piskorski, T., & Seru, A. (2018) Fintech, Regulatory Arbitrage, and the Rise of Shadow Banks. Journal of Financial Economics, 130, 453–483.
[10]. Hachem, K. (2018) Shadow Banking in China. Annual Review of Financial Economics, 10, 287–308.
[11]. Tian, X., Tu, G., & Wang, Y. (2024) The Real Effects of Shadow Banking: Evidence From China. Management Science, 70(12), 8556–8582.
[12]. Ferrante, F. (2018) A Model of Endogenous Loan Quality and the Collapse of the Shadow Banking System. American Economic Journal: Macroeconomics, 10(4), 152–201.
[13]. Gong, X. L., Xiong, X., & Zhang, W. (2020) Shadow Banking, Monetary Policy and Systemic Risk. Applied Economics, 53(14), 1672–1693.
Cite this article
Dong,R. (2025). The Impact of Shadow Banking Risk on Systemic Financial Risk in China. Lecture Notes in Education Psychology and Public Media,88,31-36.
Data availability
The datasets used and/or analyzed during the current study will be available from the authors upon reasonable request.
Disclaimer/Publisher's Note
The statements, opinions and data contained in all publications are solely those of the individual author(s) and contributor(s) and not of EWA Publishing and/or the editor(s). EWA Publishing and/or the editor(s) disclaim responsibility for any injury to people or property resulting from any ideas, methods, instructions or products referred to in the content.
About volume
Volume title: Proceedings of the 3rd International Conference on Global Politics and Socio-Humanities
© 2024 by the author(s). Licensee EWA Publishing, Oxford, UK. This article is an open access article distributed under the terms and
conditions of the Creative Commons Attribution (CC BY) license. Authors who
publish this series agree to the following terms:
1. Authors retain copyright and grant the series right of first publication with the work simultaneously licensed under a Creative Commons
Attribution License that allows others to share the work with an acknowledgment of the work's authorship and initial publication in this
series.
2. Authors are able to enter into separate, additional contractual arrangements for the non-exclusive distribution of the series's published
version of the work (e.g., post it to an institutional repository or publish it in a book), with an acknowledgment of its initial
publication in this series.
3. Authors are permitted and encouraged to post their work online (e.g., in institutional repositories or on their website) prior to and
during the submission process, as it can lead to productive exchanges, as well as earlier and greater citation of published work (See
Open access policy for details).