Abstract
The expansion of the shadow banking system has increased the diversity of the global financial system, and become an important source of funding. In recent years, non-bank credit creation has also flourished in China, facilitating the follows of credit to small- and medium-sized enterprises (SMEs). However, the near collapse of the US financial system in 2008 suggests that shadow banking is embedded with various risks, induced by structural flaws of the complicated financial system. These flaws are expected to be addressed by further reforms and supervisions to redirect the shadow banking system onto a more sustainable path. This chapter first reviews the definition and development of shadow banking in the global context. Then we will examine the characteristics of shadow banking in China, assess its impacts and finally discuss regulatory implications for economic and financial stability.
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