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The role of shadow banking in systemic risk in the European financial system

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  • Bellavite Pellegrini, Carlo
  • Cincinelli, Peter
  • Meoli, Michele
  • Urga, Giovanni

Abstract

We study how the characteristics of different financial institutions relate to systemic risk using the ΔCoVaR measure of Adrian and Brunnermeier (2016). We contrast traditional banks with shadow entities, such as Money Market Funds and Finance Services, using a sample of 476 European financial institutions between 2006 and 2015. We find that systemic risk increases significantly in the size of large financial institutions, particularly Money Market Funds, while it is insensitive to the size of Finance Services. We also find that Finance Services are particularly sensitive to proxies for market risk. For traditional banks, their reliance on short term wholesale funding is a key determinant of their contribution to systemic risk.

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  • Bellavite Pellegrini, Carlo & Cincinelli, Peter & Meoli, Michele & Urga, Giovanni, 2022. "The role of shadow banking in systemic risk in the European financial system," Journal of Banking & Finance, Elsevier, vol. 138(C).
    • Handle: RePEc:eee:jbfina:v:138:y:2022:i:c:s037842662200022x
    DOI: 10.1016/j.jbankfin.2022.106422
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    Cited by:

    1. Zhang, Ping & Yin, Shiqi & Sha, Yezhou, 2023. "Global systemic risk dynamic network connectedness during the COVID-19: Evidence from nonlinear Granger causality," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 85(C).
    2. Liu, Huan & Tao, Yunqing & Zeng, Lin & Chen, Dong, 2023. "Investor-enterprise interactions and shadow banking of non-financial enterprises in China," Finance Research Letters, Elsevier, vol. 55(PB).
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    4. Krenz, Johanna & Verma, Akhilesh K, 2023. "A leaky pipeline: Macroprudential policy shocks, non-bank financial intermediation and systemic risk in Europe," WiSo-HH Working Paper Series 79, University of Hamburg, Faculty of Business, Economics and Social Sciences, WISO Research Laboratory.

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    More about this item

    Keywords

    Systemic risk; Shadow banking; Financial crisis; CoVaR; Panel data;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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