China's Shadow Banking: Bank's Shadow and Traditional Shadow Banking

47 Pages Posted: 12 Nov 2019

See all articles by Guofeng Sun

Guofeng Sun

Research Institute of People's Bank of China; Economics Department of Princeton University

Date Written: November 8, 2019

Abstract

Banks' shadow, or money creation by banks beyond traditional loans, plays an important role in China's money-creation process, posing a number of challenges to monetary policy operations and financial risk management. This paper analyzes the money-creation mechanisms of China's shadow banking sector in detail, provides accurate measurements, investigates its effects on financial risk, and surveys recent regulation. To strengthen supervision, China's regulators should closely track the evolution of various shadow banking channels, both on- and off-balance sheet. Specific macroprudential regulation tools, such as asset reserves and risk reserves, should be applied separately to banks' shadow and traditional shadow banking.

Keywords: banks' shadow, traditional shadow banking, credit money creation, bank accounting, regulation

JEL Classification: E44, E51, G28

Suggested Citation

Sun, Guofeng, China's Shadow Banking: Bank's Shadow and Traditional Shadow Banking (November 8, 2019). BIS Working Paper No. 822. Available at SSRN: https://ssrn.com/abstract=3485213

Guofeng Sun (Contact Author)

Research Institute of People's Bank of China ( email )

No.32 Chengfang Street
Beijing, Beijing 100800
China

Economics Department of Princeton University ( email )

22 Chambers Street
Princeton, NJ 08544-0708
United States

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