Thursday, March 10, 2016

Emily Lee on China's Shadow Banking System after the Global Financial Crisis (PekingULJ)

"Shadow Banking System in China after the Global Financial Crisis"
Emily Lee
Peking University Law Journal
March 2016, Vol. 3, Issue 2, pp 362-384
Abstract: This article first examines the composition of the shadow banking system in China and then critically analyses its interconnectivity with the traditional banking system and global capital markets. It argues that whilst shadow bank lending in China contributes to the country's economic growth, the normal functionality of capital markets could be impaired if shadow banks continue to operate on a high-risk/high-yield business model which could potentially pose a systemic risk. It also addresses the concerns arising from high-leverage shadow bank lending practice and cautions against shadow banks operating in a black hole area that enables them to escape from regulatory purview. The article suggests that future regulatory (law) reform should guide shadow banks towards consumer protection by establishing an effective internal control system, enabling sufficient risk controls and requiring material information disclosure; towards safeguarding capital markets; and towards reducing their high levels of leverage. Contact the author for a copy.

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