Analysis of shadow banking

下面为大家整理一篇优秀的assignment代写范文- Analysis of shadow banking，供大家参考学习，这篇论文讨论了关于影子银行的分析。影子银行这一术语是太平洋投资管理公司的分析师提出的，影子银行业务是基金和信托等提供的，它以一种隐蔽的，不为人察觉的方式提高了杠杆，在经济发展平稳时，影子银行为投资提供了更多的资金来源，然而在经济危机时，却有可能使得危机更加严重。

Over the past few decades, globalization, financial liberalization and innovation have transformed the world financial system. Advances in information and communications technology have also blurred the boundaries of the financial system; In this case, Banks and non-bank financial institutions are able to take advantage of information, regulatory, price and tax arbitrage opportunities that have occurred off-balance sheet or abroad and are outside the purview of national financial regulators. The result is a highly interconnected global financial network; The network connects financial institutions through complex and often toxic derivatives and highly leveraged products.

The term "shadow banking" is put forward by the analyst at Pacific investment management co., shadow banking business is provide funds and trust, it in a hidden, hidden way to improve the lever, the stable economic development, the shadow Banks provided more source of funds for investment, however, in the economic crisis is likely to make the crisis more serious.

Historically, although non-bank financial institutions have existed for years, many have not been included in formal regulatory frameworks. Money market funds, for example, are regulated for disclosure and guidance purposes rather than prudence. In many markets in the developing world, pawnshops/lenders are registered but not regulated by bank regulators. During the global financial crisis, many bank-related crises occurred in developed economies to some extent, which led to the bankruptcy of traditional Banks, while shadow Banks became increasingly profitable. The lack of oversight within Banks, through off-balance-sheet activities and offshore activities, makes it harder to detect risks.

It is unclear how big the potential risks of China's shadow banking are due to problems in definition, statistical methods and measurement. This paper argues that given the favorable conditions at present, that is, shadow banking is essentially a domestic debt problem, and China has sufficient resources and flexible policies to solve this problem, the risk assets of shadow banking are still at a controllable level.

However, the implementation of remedial measures is urgent. This is because the national balance sheet data only reflect the Chinese economic situation at a specific point in time from a top-down perspective, which is a comprehensive assessment of the current situation. The data themselves do not attempt to predict China's future economic dynamics or their interplay with the global situation. The situation could take a turn for the worse if there is some unexpected shock, economic growth stalls or property prices plummet. While modelling these dynamics can increase awareness and lead to numerical predictions, such analysis is complex, requires a large amount of data and requires the co-operation of multiple regulators, beyond the scope of this book. Even so, the severity of the problem cannot be underestimated from an analysis of national balance sheets alone. Shadow banking, the formal banking system and inter-company credit problems are intertwined, and the economy is likely to be hit hard if the economy slows further and property prices continue to adjust. The a-share market crash between June and September 2015 illustrates this point. Shadow banking provides investors with a certain amount of financing channels in the two financial markets, making the market more volatile and fragile.

Regulatory arbitrage is often cited as an important factor driving the growth of shadow banking. Arbitrage involves trading or strategies developed to take advantage of differences within or between regulatory regimes. Given regulatory constraints on Banks' off-balance-sheet activities, particularly capital adequacy requirements, Banks are shifting more activity off the books to save capital. The evidence suggests that ensuring greater liquidity means reducing regulatory capital. Using shadow banking activities, such as holding structured finance instruments, Banks were able to raise their expected earnings by circumventing strict regulatory requirements and to gain more leverage than the prudential regulatory regime allowed. In addition, off-balance-sheet vehicles allow Banks to evade disclosure obligations and accounting requirements, effectively masking the real economic risks they bear. The separation of regulatory and legal structures between different economies means that leverage and risk increase not only from off-balance-sheet transactions but also from various offshore activities, with the incentive to avoid taxes, capital, accounting policies and regulatory requirements. While regulation is still confined to national borders, shadow banking has spread across borders and across the globe.

Securitisation caters to two main drivers. The first is the company's need for safe liquid assets and the asset management industry's need to manage liquidity. Large companies are finding that they need high quality products that are liquid to manage their global cash flow. To meet this demand, backed by credit insurance and comprehensive credit enhancement, money market funds, asset-backed securities and other products have increased substantially. The second factor is that traditional Banks use securitized debt as collateral to increase their repo capital and thus their leverage and economic returns. Banks hold securitised debt through structured investment vehicles (sivs), rather than long-term collateral backed by short-term deposits, to reduce their capital charges and improve capital efficiency. In order to spread financial risk across the economy, securitisation seems to have shifted risk from Banks to investors. Because Banks have become marketmakers of asset-backed securities, and Banks have sometimes promised to buy them back, liquidity and credit risk remain largely in the Banks, ultimately triggering the systemic risks that led to the global financial crisis.

Another role of shadow banking is as a collateral intermediary, which makes previously illiquid assets, such as mortgages, student loans and junk bonds, more liquid and fungible. Dealer Banks such as lehman brothers were at the heart of the process, finding collateral and pledging it to other parties to secure capital or support other contracts. The use and reuse of collateral magnifies procyclicality and makes the financial system more vulnerable. Moreover, when dealer Banks themselves use the same collateral for financing, once their customers withdraw their collateral, dealer Banks are not only prone to problems themselves, but also become the source of systemic risk. Investors' pursuit of high returns is another major driver of the development of shadow banking products in the context of falling global interest rates, rising household spending and rising corporate deposits. When the supply of good assets fails to meet the demand, this demand increases. What's more, after the longest period of low interest rates in history, investors are also looking for alternative private investment assets with higher returns. Shadow banking has simply introduced structured vehicles that think of themselves as "safe" assets that offer equity-like returns but are only as volatile as bonds.

Shadow banking or non-bank financial intermediaries are not monsters, and there is no need to root them out through regulation. Globally, shadow banking is an integral part of the financial system, providing services to sectors that lack financial services. While shadow banking was a factor in the global financial crisis in developed countries, it is smaller, less complex and less risky in China. However, China's shadow banking also has some common problems of foreign shadow banking, such as opaque business activities, usury, financialization and ponzi scheme, etc. In addition, the moral hazard brought by the association with the formal banking system will lead to the complication of credit risk. As for the emerging shadow banking risks with Chinese characteristics, although we cannot fully copy international experience, we cannot delay dealing with them. Unregulated P2P platforms, which provided credit to both companies and contributed to the a-share crash, are one example. The rapid development of shadow banking in China can be seen as part of the market reaction. At a time when there is demand for credit in the real sector and Chinese residents and companies want higher-yielding savings/investment products, shadow banking has become a tool to circumvent strict limits on bank lending and interest rates. Another reason for the rapid development of shadow banking is that formal Banks have liquidity needs due to structural problems, and their business models tend to issue short-term loans, while enterprises are willing to pay higher interest rates than the official rate. In this context, shadow banking can be regarded as a "roundabout" channel for financial innovation and development, so regulators did not adopt a crackdown at the beginning.

But, as elsewhere, financial innovation sometimes goes hand in hand with greed and get-rich-quick incentives, and problems of financialization, usury, ponzi schemes, fraud and even outright abuse of controls and regulatory loopholes arise. In China, a ponzi scheme involves cross guarantees, bundling shadow bank credit with formal bank participation, raising public doubts about the quality of credit assets in the formal banking system. On these issues, regulators need to pay more attention to them immediately and control their negative effects and moral hazard.

In a word, China's shadow banking problem is still under control, but time is running out. A comprehensive set of policies and measures are urgently needed to prevent the escalation of non-performing loans in shadow banking and avoid contagion effects. It also provides a golden opportunity to comprehensively address structural imbalances in China's economy and financial system. The key is to improve the allocation of capital, promote higher returns and growth, and reduce the risk of a debt-led financial collapse. China is to enter the ranks of middle-income countries, formed the pattern of consumption and production of urbanization, broader, technology-driven, mobile Internet developing, more inclusive and ecological sustainability, it is changing to the requirement of capital, take the appropriate policies and measures to ensure that the financial system can satisfy and support the process. To strengthen the role of the market and improve the efficiency of China's economic development, China needs to adopt a more active attitude to optimize industries with excess capacity and state-owned enterprises that are losing money. Regular dialogue with key stakeholders, including the top leadership and the public, is critical to winning public support, maintaining momentum for reform and getting feedback on implementation.

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