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Understanding Shadow Banking And It'S Role In The Recent Financial Crisis

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  • Radislav Jovovic
  • Nebojsa Jovovic

Abstract

Prevailing approach which dominates science of economics is "invisible hand," that is, a world where private decisions are unknowingly guided by prices to allocate resources efficiently. The credit crisis raises the question of how it is that we could get slapped in the face by the invisible hand. What happened? Very actual opinion today is: that market is a imperfect mechanism? There is strong polarity in economics thoughts: but today fewer economists argue the ability of "invisible hand" to fully regulate market. Taking into account this situation, we stared to believe that there are many different ways of thinking about the recent financial crisis. And we wanted to focus on one way that people think about it in terms of probabilities of deviating good bank equilibrium. Through our research of bank nature, we found that the shadow banking system played a major role in the recent financial crisis. Focus of this paper is to contribute understanding of shadow banking system in function of avoiding future financial crisis.

Suggested Citation

  • Radislav Jovovic & Nebojsa Jovovic, 2013. "Understanding Shadow Banking And It'S Role In The Recent Financial Crisis," Montenegrin Journal of Economics, Economic Laboratory for Transition Research (ELIT), vol. 9(1), pages 75-84.
  • Handle: RePEc:mje:mjejnl:v:9:y:2013:i:1:p:75-84
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    References listed on IDEAS

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    1. Gorton, Gary B & Pennacchi, George G, 1993. "Security Baskets and Index-Linked Securities," The Journal of Business, University of Chicago Press, vol. 66(1), pages 1-27, January.
    2. Yochanan Shachmurove, 2010. "The Next Financial Crisis," PIER Working Paper Archive 10-027, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    3. Gorton, Gary & Pennacchi, George, 1990. " Financial Intermediaries and Liquidity Creation," Journal of Finance, American Finance Association, vol. 45(1), pages 49-71, March.
    4. Bernanke, Ben S, 1983. "Nonmonetary Effects of the Financial Crisis in Propagation of the Great Depression," American Economic Review, American Economic Association, vol. 73(3), pages 257-276, June.
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