Part 5: the suggestion of Chinese government supervises and regulates the shadow banking system

In the last paper, I was talking about the regulation of Shadow Banking System in foreign countries, and both these method are very useful of shadow banking system in China, however, like the Part 2 said, the private financing organizations is typical Chinese style shadow banking, and the regulation method of foreign countries do not covered this part. Therefore, in the following part, I will combine the regulation method of foreign countries and the Chinese reality to make suggestions.

1.     Regulation of the formal financial institution

       For the formal financial institutions, due to the shadow banking system in China is different from the western countries; do not have lots of financial innovation, therefore, the regulation of Chinese shadow banking system is relatively easy. Use the method 3 in last paper which strengthen banking supervision, to reduce the relevance of the traditional banking and shadow banking, strengthen the supervision of bank off-balance sheet business, create relevant laws and regulations, avoid arbitrage of banks, increase the intensity of risk monitoring, strictly prohibited the corporation between commercial bank and such the investment banks, equity funds, private lending which have a high risk, prevent securitization of bank capital. Speed ​​up financial innovation, make the borrowers have more choices, meanwhile, study the experience of the financial crisis, financial innovation should base on services the substantial economy and prevent risks, to development the Chinese financial industry. 

2.     Regulation of the informal financial institution

       Regulation the informal financial institutions is a hard work, financial regulatory authorities need to scientific and comprehensive assess and judge those informal financial institution, to take differentiated measures to these institutions. Not only to resolutely crack down the underground banks, illegal fund-raising and other illegal activities, but also need to guide and regulate the behavior of private financing. Accelerate the legislative process of the investment fund, pawn, finance lease, Micro-credit, warranty and other emerging financial sector; clear the main body of supervision and the method of regulation, made the shadow banking system become “sunshine bank”, this not only makes the Chinese near-monopolistic financial system become more diverse, but also effectively avoids the potential risks posed by the shadow banking.

3.     Strengthening the cooperation between each regulatory authorities

        Because there have lots of financial regulation authority in China, therefore, it need to establish a unite regulatory mechanism, lead by a specify department, such as centre bank, and the relevant departments as members, make the regulatory policies together and Joint Law Enforcement. Strengthen the Statistics of All-system Financing Aggregate, strengthen the supervision of the M0, in order to control the amount of private lending.

These are my humble opinions, probably is not helpful for China, but I will keep study in this topic; hope can help my country avoid the potential risk of shadow banking system.