What is shadow banking?

According to the definition of the relevant Financial Stability Board, shadow banking refers to those credit intermediary systems (including various related institutions and business activities) that are outside the banking supervision system and may lead to systemic risks and regulatory arbitrage. There are four factors that lead to the systemic risk of shadow banking: maturity mismatch, liquidity conversion, credit conversion and high leverage.

China's "shadow banking" is not a single institution. For example, some unregulated lending institutions with hidden capital flows are "shadow banks". It is almost the most strictly regulated bank, and its bank-trust wealth management products that are not included in the credit business are also "shadow banks". There are three main forms of "shadow banking": bank wealth management products, loan products from non-bank financial institutions and private lending.

Classification of shadow banking

1. shadow banking: firstly, the shadow banking itself, and the main participants are investment banks, hedge funds, private equity funds, SIV and money market funds;

2. Traditional banks adopting the shadow banking method: these banks are still under supervision and can get the support of the central bank, but they also apply the shadow banking method to some businesses;

3. Including some shadow banking tools: financial derivatives that allow institutions to transfer risks, increase leverage and evade supervision.