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Shadow Banking, Rigid Payment and Macro Prudential Policy

【Authors】
LI Jianqiang, YUAN Jia & ZHANG Shucui & WEI Lei
【WorkUnit】
LI Jianqiang, YUAN Jia (Financial Research Institute of People's Bank of China, 100032)ZHANG Shucui (Center of China Electronic Information Industry Development Institute, 100846)WEI Lei (Research Bureau of People's Bank of China, 100032)
【Abstract】

In recent years, shadow banking has been developing rapidly in China, and has played a positive role in meeting the demand of residents'wealth management, optimizing the structure of social financing and supporting the real economy. But at the same time, some potential risks have exposed gradually. This paper discusses the impact of shadow banking on the monetary policy and the risk mechanism of rigid payment, and evaluates the macro prudential policy which includes off-balance-sheet assets. The findings are as below. Firstly, the tight monetary policy reduces the traditional credit scale but stimulates the growth of the shadow banking assets, which causes liquidity “waterbed effects”and weakens the effectiveness of monetary policy. Secondly, rigid payment pushes up the risk-free market interest rates, distorts financial market pricing mechanism, and increases the financial fragility and the difficulty of financial regulation. Thirdly, the macro-prudential policy that includes off-balance-sheet assets into the bank capital requirements significantly improves the counter-cyclical regulation effect, and effectively alleviates the asset panic selling pressure caused by external shocks. Fourthly, capital adequacy regulation that “leans against the wind” is far from enough and breaking rigid payment in an orderly manner is no less important than diversifying and perfecting the macro prudential policy toolbox and should be an important component of the macro prudential policy framework.


JEL:G01, E44, H12

【KeyWords】
Shadow Banking, Rigid Payment, Macro Prudential