Abstract: After the financial crisis in 2008, the enhanced cooperation among financial institutions has been caused by rapid development of China’s shadow banking, which may affect systemic risk. To prevent systemic risk, some strengthening financial regulations have been implemented since 2017. It is important to maintain financial stability effectively whether the regulations can reduce the interconnectedness between financial institutions. Based on the context, a single-index model (SIM) is used to estimate systemic interconnectedness across financial institutions, including depositories, trust companies, security companies and insurance companies. Then the financial institutions’ interconnectedness structure is taken into consideration in the measurement of systemic risk. Moreover, the impact of shadow banking on systemic risk is analyzed by applying systemic GMM. Furtherly, the effect of strengthening financial regulation on systemic risk and related mechanisms are discussed in this paper. The main findings are as follows. First, the rapid development of shadow banking increases bank systemic risk before 2017. Second, strengthening financial regulation helps to decrease bank systemic risk and plays a certain role of “de-channeling”. Third, strengthening financial regulations have contributed to curb the rapid growth of shadow banking and reduce its dependence on other financial institutions in its investment.

Key words: strengthening financial regulation; bank systemic risk; shadow banking; SIM