The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Shadow Banking: A Review of the Literature

  • Tobias AdrianEmail author
  • Adam B. Ashcraft
Reference work entry


We provide an overview of the rapidly evolving literature on shadow credit intermediation. The shadow banking system consists of a web of specialised financial institutions that conduct credit, maturity, and liquidity transformation without direct, explicit access to public backstops. The lack of such access to sources of government liquidity and credit backstops makes shadow banks inherently fragile. Much of shadow banking activities is intertwined with the operations of core regulated institutions such as bank holding companies and insurance companies, thus creating a source of systemic risk for the financial system at large. We review fundamental reasons for the existence of shadow banking, explain the functioning of shadow banking institutions and activities, discuss why shadow banks need to be regulated, and review the impact of recent reform efforts on shadow banking credit intermediation.


Shadow banking Financial stability Financial intermediation Securitization Narrow banking Implicit guarantee Asset-backed commercial paper Tri-party repo Government-sponsored enterprise Credit derivatives Financial guarantees Money market mutual funds 

JEL Classifications

G28 G20 G24 G01 
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The authors thank Nicola Cetorelli and Andrei Shleifer for helpful comments. The views expressed in this paper are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System.


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© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  1. 1.