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Understanding the risks inherent in shadow banking: a primer and practical lessons learned

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  • David Luttrell
  • Harvey Rosenblum
  • Jackson Thies

Abstract

Examinations of the 2007–09 financial crisis often use the term shadow banking. This paper explains the form and functioning of the shadow banking system, how it relates to systemic risk and the recent financial crisis, and what particular aspects should be highlighted to benefit policymakers as they implement new regulations designed to enhance financial market resiliency. The paper is divided into two parts: The first serves as a primer on shadow banking; the second provides a narrative of how the system froze during the financial crisis and pertinent lessons learned for the current reform effort.

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File URL: http://www.dallasfed.org/assets/documents/research/staff/staff1203.pdf
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Bibliographic Info

Article provided by Federal Reserve Bank of Dallas in its journal Staff Papers.

Volume (Year): (2012)
Issue (Month): Nov ()
Pages:

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Handle: RePEc:fip:feddst:y:2012:i:nov:n:18

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Keywords: Systemic risk ; Financial crises ; Regulation;

References

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  1. Daniel M. Covitz & Nellie Liang & Gustavo A. Suarez, 2009. "The evolution of a financial crisis: panic in the asset-backed commercial paper market," Finance and Economics Discussion Series 2009-36, Board of Governors of the Federal Reserve System (U.S.).
  2. Vasiliki Skreta & Laura Veldkamp, 2009. "Ratings Shopping and Asset Complexity: A Theory of Ratings Inflation," NBER Working Papers 14761, National Bureau of Economic Research, Inc.
  3. Adam Ashcraft & Paul Goldsmith-Pinkham & James Vickery, 2010. "MBS ratings and the mortgage credit boom," Staff Reports 449, Federal Reserve Bank of New York.
  4. Charles S. Morris, 2011. "What should banks be allowed to do?," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 55-80.
  5. Danielle DiMartino & John V. Duca & Harvey Rosenblum, 2007. "From complacency to crisis: financial risk taking in the early 21st century," Economic Letter, Federal Reserve Bank of Dallas, vol. 2(dec).
  6. Diamond, Douglas W & Dybvig, Philip H, 1983. "Bank Runs, Deposit Insurance, and Liquidity," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 401-19, June.
  7. Richard G. Anderson & Charles S. Gascon, 2009. "The commercial paper market, the Fed, and the 2007-2009 financial crisis," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 589-612.
  8. Arvind Krishnamurthy, 2010. "How Debt Markets Have Malfunctioned in the Crisis," Journal of Economic Perspectives, American Economic Association, vol. 24(1), pages 3-28, Winter.
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Cited by:
  1. Nicholas Borst, 2013. "Shadow Deposits as a Source of Financial Instability: Lessons from the American Experience for China," Policy Briefs PB13-14, Peterson Institute for International Economics.
  2. Tyler Atkinson & David Luttrell & Harvey Rosenblum, 2013. "How bad was it? The costs and consequences of the 2007–09 financial crisis," Staff Papers, Federal Reserve Bank of Dallas, issue Jul.

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