Shadow banking refers to all kinds of financial intermediary business outside the conventional banking system. It usually takes non bank financial institutions as the carrier to transform the risk factors such as credit, liquidity and maturity of financial assets, and plays the role of quasi bank. The report is the first time for the government to systematically define the criteria, scope and classification of Chinas shadow banking. According to the report, the determination of Chinas shadow banking standards must take into account the common characteristics of international standards for shadow banking and the characteristics of Chinas shadow banking, and distinguish between broad and narrow shadow banking according to the degree of risk.
So, compared with other economies, what are the different characteristics of Chinas shadow banking? The report summarizes five aspects
One is to take the bank as the core, which is manifested as the shadow of the bank. Chinas bank assets have always accounted for about 90% of the total assets of the financial industry. It is precisely because of the huge scale of banking assets that the asset side and liability side of shadow banking are closely related to banks. From the debt side, banks are the main providers of funds for non bank financial institutions and shadow banks. From the asset side, most of the customers of shadow banking are bank customers, which are channel business in essence. It can be seen that Chinas shadow banking has the characteristics of bank centralization. The core of shadow banking in developed economies is non bank financial institutions such as mutual funds and money market funds, and the less funds come directly from the banking system.
The second is to regulate arbitrage as the main purpose, illegal phenomenon is more common. All kinds of institutions, taking advantage of imperfect regulatory system and inconsistent regulatory standards, are free from the regulatory edge and engage in regulatory arbitrage activities in the so-called gray zone. There are also a large number of unlicensed driving, which has formed a small environment of national finance.
Fourth, the profit model of charging channel fees is relatively common. Shadow banking in developed economies is mainly a trading mode, which earns interest spread income by means of repurchase, short selling and market making. Most of the shadow banking products in China are due for subscription and holding, with low liquidity, winning by volume and competing for market share. Earning channel management fee is the main source of profit.
Fifthly, it is mainly classified loans with prominent credit risk. Shadow banking in developed economies has a wide range of investment, mainly standardized assets, and low credit default risk. Most of the funds are obtained by market means such as mutual borrowing and repurchase, which leads to the liquidity risk of centralized large redemption. Most of shadow banking in China is the substitution of bank loans, but the customer rating standards are significantly lower than loan customers. Both financing sources and capital investment direction bear direct credit risk, and the risk is greater than bank loans.
Therefore, combined with the characteristics of Chinas shadow banking, the report proposes four main standards for defining Chinas shadow banking: the coverage and intensity of management, the complexity of product structure and leverage level, the adequacy and comprehensiveness of information disclosure, and the pressure of centralized cashing.
Accordingly, shadow banking can be divided into broad sense and narrow sense. In broad sense, shadow banking includes interbank financial management and other bank financing, interbank specific purpose vehicle investment, entrusted loan, fund trust, trust loan, non stock public offering fund, securities industry asset management, insurance asset management, asset securitization, non equity private equity fund, online lending P2P institutions, financial leasing companies, small loan companies, and commercial factoring companies The insurance business of financing guarantee companies, consumer loans issued by non licensed institutions, debt financing plans and structured financing products provided by local exchanges.
Among them, the shadow banking has obvious characteristics and relatively high risk, belonging to the narrow shadow banking business, such as interbank specific purpose vehicle investment and interbank financial management, financial investment non-standard creditors rights, entrusted loan, trust loan, network lending P2P loan and non equity private equity fund.
On the eve of risk outbreak of shadow banking at the end of 2016
In the past three years, the governance of Chinas shadow banking mainly comes from the high risk accumulated in this field. According to the report, by the end of 2016, the scale of shadow banking had been very large, with serious violations of laws and regulations, and was on the eve of the outbreak of risks.
According to the data, by the end of 2016, the total investment on the balance sheet of commercial banks amounted to 23 trillion yuan, 29 trillion yuan for financial products, 13 trillion yuan for entrusted loans, and 51 trillion yuan for fund trust and securitization asset management products. The volume of shadow banking is basically the same as that of bank credit in the same period, and the growth rate is far faster than that of loans.
According to the report, by the end of 2016, the scale of shadow banking in China has been quite large, with more than 90 trillion yuan in the broad sense and 51 trillion yuan in the narrow sense. Shadow banking has been running like a runaway wild horse all the way. It not only keeps financial risks constantly accumulating and exposing, but also has increasingly serious problems of illegal and illegal activities. It has also greatly increased the level of Chinas macro leverage, inflated asset bubbles, contributed to the reality of the financial sector and the economy, and seriously affected the normal and effective allocation of market resources. Quality transformation and development pose a major threat.
At the end of 2016, the central economic work conference proposed to put prevention and resolution of financial risks in a more important position. At the beginning of 2017, the 15th meeting of the central leading group on finance and economics stressed that it is necessary to make up for the shortcomings of supervision in a timely manner and resolutely control the market chaos. The main measures include: resolutely crack down on illegal financial groups and illegal financial activities of unlicensed driving; severely punish false capital injection, circulating capital injection, equity holding and invisible shareholders; seriously investigate and deal with the manipulation of large shareholders and insider control; fully standardize the regulatory standards and procedures; and vigorously strengthen the punishment and accountability In addition, we should carefully sort out the loopholes in the system, and make up for the shortcomings of the system, so as to achieve full coverage of supervision.
After three years of special governance, the savage growth of shadow banking has been effectively curbed. According to the data previously released by the China Banking and Insurance Regulatory Commission (CIRC), after vigorous rectification, 16 trillion yuan of shadow banking has been reduced in the past three years, and the shadow banking and cross financial risks have continued to converge. By the end of the first quarter, the balance of interbank financial management was 846 billion yuan, down 87% from the historical peak.
Risk reduction in three years
Reserve space for the implementation of this years counter cyclical policy
Since the beginning of 2017, the scale of shadow banking has been greatly reduced from the historical high, and the high-risk business with channel, leverage and nesting has been focused on cleaning up. According to the report, by the end of the first half of this year, P2P loans for inter-bank financial management, entrusted loans and online lending further dropped to 660.7 billion yuan, 11.22 trillion yuan and 0.19 trillion yuan respectively. Compared with the historical peak in 2017, the interbank channel business of trust finance decreased by 5.3 trillion yuan. Over the same period, the scale of asset management in the securities industry decreased by more than 45%, and channel products of fund subsidiaries decreased by 1.55 trillion yuan in 2018 alone. The centralized leverage of shadow banking has been compressed, and the leverage ratio of reverse repurchase transactions of self operated bonds of commercial banks has dropped from more than 40% before 2017 to less than 30%.
It is worth noting that the report also believes that the early precise dismantling of shadow banking has won an opportunity for financial support to fight the epidemic and return to work and production this year, especially creating very favorable conditions for the introduction of counter cyclical adjustment measures. The specific performance is as follows:
First, there is room for a substantial increase in credit. A large number of funds deposited in large enterprises and zombie enterprises with excessive credit were cleared up, and idle funds stranded in the financial system were reduced. There is no inflation and asset price rise due to the credit expansion, which is largely due to the clearing of the pool of shadow banking in the early stage.
Second, it avoids the further accumulation of risks and fundamentally eliminates the hidden danger of concentrated risk outbreak. Through the regulation of shadow banking, the level of financial risk in China has dropped sharply. At present, affected by the epidemic situation, the default pressure of financial assets is increasing, and the risk situation is more complex. However, the overall operation of the financial system is still relatively stable, and the financial market has not experienced big ups and downs, and all kinds of risks with urgent characteristics have been greatly reduced. If we did not make efforts to reduce the shadow banking in the past few years, the financial risks we will face today will be very serious, and we can not rule out the possibility of regional and systemic risks.
Third, it effectively avoided the rapid rise of leverage ratio. Chinas macro leverage ratio has declined slightly in the past few years, reversing the growth rate of more than ten percentage points per year in the past. The rapid rise in leverage in non-financial enterprises, the residential sector and local governments has also been curbed. The expansion policy adopted in response to the epidemic did not significantly increase the macro leverage ratio, nor did it increase the debt burden of the sector. Without the severe structural deleveraging in previous years, Chinas leverage ratio will never be the current level, and the implementation of relevant macro hedging policies will be severely constrained, and the effect will be greatly reduced.
The research group revealed that due to the impact of the epidemic this year, macro policies have increased counter cyclical adjustment, but at present, shadow banking is running smoothly and has not changed much in terms of scale and type. In particular, the scale of high-risk shadow banks has not rebounded at present, and continues to drop pressure.
Although after three years of centralized regulation, the effect of reducing high-risk shadow banking is significant, and the systemic risk of China has decreased significantly. However, the report also points out that Chinas shadow banks have accumulated for a long time and their stock risks are relatively high. Quite a number of financial institutions still have scale complex. Various implicit guarantees and rigid cashing have not been really broken. The seller is responsible, the buyer is responsible has not really been established, and some high risk shadow banks may make a comeback by improper innovation. However, it should also be noted that shadow banking will not disappear and will coexist with the traditional financial system for a long time. The role and risk level of different types of shadow banks are quite different. Therefore, it is necessary to establish and improve the continuous supervision system of shadow banking.
First, improve statistical monitoring. Shadow banking has the essence of regulatory arbitrage, its product structure and organizational form are always evolving, and various innovative methods emerge in endlessly. Shadow banking across different industries, incomplete data, inconsistent caliber and double counting still exist. Therefore, we must continue to improve the statistical monitoring, timely and dynamically grasp the scale and types of shadow banking, especially the risk evolution path and risk level changes.
Second, we must guard against rebound and resurgence. First, we will unswervingly take the rectification of shadow banking as an important starting point to win the battle of preventing and resolving major financial risks, and persistently dismantle high-risk shadow banking business. Second, focus on prominent problems and risk points, set up forbidden zone for shadow banking and cross financial business, prohibit multi-layer nested investment, capital idling, de real to virtual, complex structure products and business resurgence, as well as false innovation and pseudo innovation. Third, adhere to the combination of rectification and transformation, complete business rectification on time and compliance, handle risks in a safe and orderly manner, and actively adjust the business model to accelerate the net value transformation.
Third, establish risk isolation. The focus is to clarify the boundaries between public offering products and private equity products, on balance sheet business and off balance sheet business, between entrusted business and self operated business, and to establish corresponding firewalls to prevent risks from infecting, interweaving and concealing each other. Fourth, improve the regulatory system. One is to ensure full coverage of supervision, leaving no regulatory gaps and blind areas, and bringing all shadow banking activities under supervision. Second, we should unify the regulatory standards of similar institutions and products, and reduce the arbitrage of idle funds. The third is to improve the risk classification, risk weight, capital provision and other standards of shadow banking. Fifthly, we should carry out comprehensive management carefully. Commercial banks should be based on prudent operation, insurance should play a role of risk dispersion and protection, securities funds should reflect the intermediary function of value investment, and trust and financial management should return to the functional orientation of entrusted by others and managed by others. We should establish a financial system with comprehensive coverage, reasonable division of labor and orderly flow. Source: Securities Times editor in charge: Wang Xiaowu_ NF
Third, establish risk isolation. The focus is to clarify the boundaries between public offering products and private equity products, on balance sheet business and off balance sheet business, between entrusted business and self operated business, and to establish corresponding firewalls to prevent risks from infecting, interweaving and concealing each other.
Fifthly, we should carry out comprehensive management carefully. Commercial banks should be based on prudent operation, insurance should play a role of risk dispersion and protection, securities funds should reflect the intermediary function of value investment, and trust and financial management should return to the functional orientation of entrusted by others and managed by others. We should establish a financial system with comprehensive coverage, reasonable division of labor and orderly flow.