China's Shadow Banking: Bank's Shadow and Traditional Shadow Banking
47 Pages Posted: 12 Nov 2019
Date Written: November 8, 2019
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: Suggested Citation