The Macroeconomic Dimensions of Shadow Banking
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This chapter sheds light on the macro-economics of the shadow banking industry. It takes the reader on a journey along issues all related to the creation of private safe assets and money creation. What is the role of liquidity for the shadow banking sector and the economy overall and how is liquidity risk transmitted in the market? Can financial instability in the shadow banking industry be predicted? And how is the traditional and shadow banking market connected from a regulatory, macroprudential and monetary point of view? How does the emergence of hybrid intermediaries impact our view and assessment on these matters? Special attention is given to the role of central banks as lenders of last resort, the function of collateral and the impact of collateral re-use and the intrinsic fragility in shadow banking activities and the applied business models.