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Shadow Banking: A Review of the Literature

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Abstract

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.

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Notes

  1. 1.

    Money market mutual funds in the United States are regulated under Rule 2a-7 of the Securities and Exchange Commission’s (SEC) Investment Company Act of 1940.

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Acknowledgments

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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  1. http://link.springer.com/referencework/10.1057/978-1-349-95121-5

    Tobias Adrian & Adam B. Ashcraft

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  1. Tobias Adrian
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Adrian, T., Ashcraft, A.B. (2018). Shadow Banking: A Review of the Literature. In: The New Palgrave Dictionary of Economics. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-349-95189-5_2946

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