MJIEL Vol 11 Issue 3 2014 - Article 4

Chasing the Shadow in Different Worlds:
Shadow Banking and Its Regulation in the U.S. and China

Simin Gao & Qianyu Wang

ABSTRACT: Four years have passed since the G20 Leaders tolled the bell to the shadow banking system at the Seoul Summit of 2010. The war against shadow banking, however, has just started on a global scale and there is still a long way to go for the international community to develop an effective regulatory framework of use for different countries. One of the first steps of the long journey would be the conduct of comparative studies of shadow banking in major jurisdictions, such as the U.S. and China, which offer good examples of shadow banking in the advanced and emerging markets. This article presents such a study of shadow banking and its regulation in these two countries, with a view to providing findings to facilitate the international community’s policy making in this area. It is found that while shadow banking varies in the U.S. and China in terms of its definitions, scopes, risks, legal origins and regulations, there are a number of similarities in order to create credit beyond the heavy regulated section, which can be viewed via the lens of the Theory of Money and Credit and the Endogenous Money Supply Theory. The authors believe that their findings would encourage the regulators to solve shadow banking problems from the monetary perspective instead of merely an institutional one.

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