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Shadow banking: a review of the literature

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  • Tobias Adrian
  • Adam B. Ashcraft

Abstract

We provide an overview of the rapidly evolving literature on shadow credit intermediation. The shadow banking system consists of a web of specialized 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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Bibliographic Info

Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 580.

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Date of creation: 2012
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Handle: RePEc:fip:fednsr:580

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Keywords: Intermediation (Finance) ; Systemic risk ; Financial risk management ; Financial institutions ; Financial market regulatory reform;

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References

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  1. W. Scott Frame & Lawrence J. White, 2005. "Fussing and Fuming over Fannie and Freddie: How Much Smoke, How Much Fire?," Journal of Economic Perspectives, American Economic Association, vol. 19(2), pages 159-184, Spring.
  2. Nicola Gennaioli & Andrei Shleifer & Robert Vishny, 2011. "A Model of Shadow Banking," Working Papers 576, Barcelona Graduate School of Economics.
  3. Michael J. Fleming & Warren B. Hrung & Frank M. Keane, 2010. "Repo Market Effects of the Term Securities Lending Facility," American Economic Review, American Economic Association, American Economic Association, vol. 100(2), pages 591-96, May.
  4. Wayne Passmore & Shane M. Sherlund & Gillian Burgess, 2005. "The effect of housing government-sponsored enterprises on mortgage rates," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2005-06, Board of Governors of the Federal Reserve System (U.S.).
  5. Tobias Adrian & Adam B. Ashcraft, 2012. "Shadow banking regulation," Staff Reports, Federal Reserve Bank of New York 559, Federal Reserve Bank of New York.
  6. Gorton, Gary & Metrick, Andrew, 2012. "Securitized banking and the run on repo," Journal of Financial Economics, Elsevier, Elsevier, vol. 104(3), pages 425-451.
  7. Tobias Adrian & Michael J. Fleming, 2005. "What financing data reveal about dealer leverage," Current Issues in Economics and Finance, Federal Reserve Bank of New York, Federal Reserve Bank of New York, vol. 11(Mar).
  8. Mathis, Jérôme & McAndrews, James & Rochet, Jean-Charles, 2009. "Rating the raters: Are reputation concerns powerful enough to discipline rating agencies?," Journal of Monetary Economics, Elsevier, Elsevier, vol. 56(5), pages 657-674, July.
  9. Vitaly M. Bord & João A. C. Santos, 2012. "The rise of the originate-to-distribute model and the role of banks in financial intermediation," Economic Policy Review, Federal Reserve Bank of New York, Federal Reserve Bank of New York, issue Jul, pages 1-14.
  10. Brunnermeier, Markus K & Pedersen, Lasse Heje, 2007. "Market Liquidity and Funding Liquidity," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6179, C.E.P.R. Discussion Papers.
  11. Tobias Adrian & Christopher R. Burke & James J. McAndrews, 2009. "The Federal Reserve's Primary Dealer Credit Facility," Current Issues in Economics and Finance, Federal Reserve Bank of New York, Federal Reserve Bank of New York, vol. 15(Aug).
  12. Acharya, Viral V & Schnabl, Philipp & Suarez, Gustavo, 2012. "Securitization Without Risk Transfer," CEPR Discussion Papers, C.E.P.R. Discussion Papers 8769, C.E.P.R. Discussion Papers.
  13. Tobias Adrian & Brian Begalle & Adam Copeland & Antoine Martin, 2013. "Repo and Securities Lending," NBER Chapters, in: Risk Topography: Systemic Risk and Macro Modeling, pages 131-148 National Bureau of Economic Research, Inc.
  14. Zoltan Pozsar & Tobias Adrian & Adam Ashcraft & Hayley Boesky, 2010. "Shadow banking," Staff Reports, Federal Reserve Bank of New York 458, Federal Reserve Bank of New York.
  15. Matthew Jaremski, 2010. "Free Bank Failures: Risky Bonds versus Undiversified Portfolios," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 42(8), pages 1565-1587, December.
  16. Patrick E. McCabe & Marco Cipriani & Michael Holscher & Antoine Martin, 2012. "The minimum balance at risk: a proposal to mitigate the systemic risks posed by money market funds," Staff Reports, Federal Reserve Bank of New York 564, Federal Reserve Bank of New York.
  17. Holmstrom, B & Tirole, J, 1996. "Private and Public Supply of Liquidity," Working papers 96-21, Massachusetts Institute of Technology (MIT), Department of Economics.
  18. Raghuram G. Rajan, 2005. "Has Financial Development Made the World Riskier?," NBER Working Papers 11728, National Bureau of Economic Research, Inc.
  19. Adrian, T. & Shin, H S., 2009. "The shadow banking system: implications for fi nancial regulation," Financial Stability Review, Banque de France, Banque de France, issue 13, pages 1-10, September.
  20. Hyun Song Shin & Emanuel Moench & Tobias Adrian, 2010. "Financial Intermediation, Asset Prices, and Macroeconomic Dynamics," 2010 Meeting Papers, Society for Economic Dynamics 297, Society for Economic Dynamics.
  21. Martin, A. & Skeie, D. & Thadden, E.L. von, 2010. "Repo Runs," Discussion Paper, Tilburg University, Center for Economic Research 2010-44S, Tilburg University, Center for Economic Research.
  22. Tobias Adrian & Karin Kimbrough & Dina Marchioni, 2010. "The Federal Reserve's Commercial Paper Funding Facility," Staff Reports, Federal Reserve Bank of New York 423, Federal Reserve Bank of New York.
  23. Tobias Adrian & Nina Boyarchenko, 2012. "Intermediary leverage cycles and financial stability," Staff Reports, Federal Reserve Bank of New York 567, Federal Reserve Bank of New York.
  24. Merton, Robert C. & Bodie, Zvi, 1993. "Deposit insurance reform: a functional approach," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 38(1), pages 1-34, June.
  25. Gorton, Gary, 1985. "Clearinghouses and the Origin of Central Banking in the United States," The Journal of Economic History, Cambridge University Press, Cambridge University Press, vol. 45(02), pages 277-283, June.
  26. Olivier Armantier & Sandra Krieger & James McAndrews, 2008. "The Federal Reserve's Term Auction Facility," Current Issues in Economics and Finance, Federal Reserve Bank of New York, Federal Reserve Bank of New York, vol. 14(Jul).
  27. Adam Copeland & Antoine Martin & Michael Walker, 2011. "Repo runs: evidence from the tri-party repo market," Staff Reports, Federal Reserve Bank of New York 506, Federal Reserve Bank of New York.
  28. Tyler Wiggers & Adam B. Ashcraft, 2012. "Defaults and losses on commercial real estate bonds during the Great Depression era," Staff Reports, Federal Reserve Bank of New York 544, Federal Reserve Bank of New York.
  29. John Geanakoplos & Ana Fostel, 2008. "Leverage Cycles and the Anxious Economy," American Economic Review, American Economic Association, American Economic Association, vol. 98(4), pages 1211-44, September.
  30. Benjamin J. Keys & Tanmoy Mukherjee & Amit Seru & Vikrant Vig, 2010. "Did Securitization Lead to Lax Screening? Evidence from Subprime Loans," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 125(1), pages 307-362, February.
  31. Adrian, Tobias & Shin, Hyun Song, 2010. "Liquidity and leverage," Journal of Financial Intermediation, Elsevier, Elsevier, vol. 19(3), pages 418-437, July.
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Citations

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Cited by:
  1. Tobias Adrian & Daniel Covitz & Nellie Liang, 2013. "Financial stability monitoring," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2013-21, Board of Governors of the Federal Reserve System (U.S.).
  2. Razvan STEFANESCU & Ramona DUMITRIU, 2014. "A State-Owned Payment And Savings System As An Alternative To The Banking Regulations Strengthening," Risk in Contemporary Economy, "Dunarea de Jos" University of Galati, Faculty of Economics and Business Administration, pages 297-301.
  3. Mario Tonveronachi, 2013. "De-globalising bank regulation," PSL Quarterly Review, Economia civile, Economia civile, vol. 66(267), pages 371-385.
  4. Adrian, Tobias, 2014. "Financial stability policies for shadow banking," Staff Reports, Federal Reserve Bank of New York 664, Federal Reserve Bank of New York.
  5. Tobias Adrian & Adam B. Ashcraft & Nicola Cetorelli, 2013. "Shadow bank monitoring," Staff Reports, Federal Reserve Bank of New York 638, Federal Reserve Bank of New York.

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