IDEAS home Printed from https://ideas.repec.org/a/psl/pslqrr/201543.html
   My bibliography  Save this article

Shadow banking, relationship banking, and the economics of depression

Author

Listed:
  • Antonio Bianco

    (Sapienza University of Rome,)

Abstract

A simple methodological accounting model of the influence of financial markets over the real economy is presented here. The model allows a tidy comparison of relationship and shadow banking, interpreted as alternative schemes of liquidity (not credit) risk management. The model emphasizes the interdependencies in entrepreneurs’ animal spirits, liquidity risk management (LRM) schemes adopted by financial institutions, and effective demand of households. The underlying idea is that fluctuations in the composition of property incomes trigger fluctuations in non-financial investment that, in turn, drive fluctuations in spending: the model thus shows up as an endogenous money version of the widow’s curse (capitalists earn what they spend). The article finds that both relationship and shadow banking must have a pro-cyclical impact, and differences are essentially based on different LRM aggregate cost functions. The model suggests that securitisation does not per se affect the financial sustainability of a growth process, yet regulatory measures aimed at checking predatory lending and re-securitisation (CDO) activities are needed to avoid possible adverse impacts on animal spirits.

Suggested Citation

  • Antonio Bianco, 2015. "Shadow banking, relationship banking, and the economics of depression," PSL Quarterly Review, Economia civile, vol. 68(275), pages 297-326.
    • Handle: RePEc:psl:pslqrr:2015:43
    as

    Download full text from publisher

    File URL: http://ojs.uniroma1.it/index.php/PSLQuarterlyReview/article/view/13234/13036
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Nicola Gennaioli & Andrei Shleifer & Robert W. Vishny, 2013. "A Model of Shadow Banking," Journal of Finance, American Finance Association, vol. 68(4), pages 1331-1363, August.
    2. Cecchetti, Stephen & Kharroubi, Enisse, 2015. "Why does financial sector growth crowd out real economic growth?," CEPR Discussion Papers 10642, C.E.P.R. Discussion Papers.
    3. Antonio Bianco, 2016. "Hicks’s thread (out of the equilibrium labyrinth)," Cambridge Journal of Economics, Oxford University Press, vol. 40(4), pages 1229-1245.
    4. Markus K. Brunnermeier & Yuliy Sannikov, 2014. "A Macroeconomic Model with a Financial Sector," American Economic Review, American Economic Association, vol. 104(2), pages 379-421, February.
    5. Bianco, Antonio, 2015. "Out of Equilibrium: Bases, Basics, Policies, and Accounts," MPRA Paper 65850, University Library of Munich, Germany.
    6. Eugenio Caverzasi & Antoine Godin, 2015. "Post-Keynesian stock-flow-consistent modelling: a survey," Cambridge Journal of Economics, Oxford University Press, vol. 39(1), pages 157-187.
    7. 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, issue Jul, pages 21-34.
    8. Alan Moreira & Alexi Savov, 2014. "The Macroeconomics of Shadow Banking," NBER Working Papers 20335, National Bureau of Economic Research, Inc.
    9. Suzuki, Tomo, 2003. "The epistemology of macroeconomic reality: The Keynesian Revolution from an accounting point of view," Accounting, Organizations and Society, Elsevier, vol. 28(5), pages 471-517, July.
    10. Mehrling, Perry, 1999. "The vision of Hyman P. Minsky," Journal of Economic Behavior & Organization, Elsevier, vol. 39(2), pages 129-158, June.
    11. McLeay, Michael & Radia, Amar & Thomas, Ryland, 2014. "Money in the modern economy: an introduction," Bank of England Quarterly Bulletin, Bank of England, vol. 54(1), pages 4-13.
    12. Claudio Borio, 2013. "The Great Financial Crisis: Setting priorities for new statistics," Journal of Banking Regulation, Palgrave Macmillan, vol. 14(3-4), pages 306-317, July.
    13. McLeay, Michael & Radia, Amar & Thomas, Ryland, 2014. "Money creation in the modern economy," Bank of England Quarterly Bulletin, Bank of England, vol. 54(1), pages 14-27.
    14. Harcourt, Geoffrey & Kriesler, Peter (ed.), 2013. "The Oxford Handbook of Post-Keynesian Economics, Volume 1: Theory and Origins," OUP Catalogue, Oxford University Press, number 9780195390766, Decembrie.
    15. Luck, Stephan & Schempp, Paul, 2014. "Banks, shadow banking, and fragility," Working Paper Series 1726, European Central Bank.
    16. Marchionatti, Roberto, 1999. "On Keynes' Animal Spirits," Kyklos, Wiley Blackwell, vol. 52(3), pages 415-439.
    17. Perry Mehrling, 2010. "The New Lombard Street: How the Fed Became the Dealer of Last Resort," Economics Books, Princeton University Press, edition 1, number 9298.
    18. Zoltan Pozsar, 2014. "Shadow Banking: The Money View," Working Papers 14-04, Office of Financial Research, US Department of the Treasury.
    19. Jakab, Zoltan & Kumhof, Michael, 2015. "Banks are not intermediaries of loanable funds – and why this matters," Bank of England working papers 529, Bank of England.
    20. Giuseppe Fontana, 2004. "Hicks on monetary theory and history: money as endogenous money," Cambridge Journal of Economics, Oxford University Press, vol. 28(1), pages 73-88, January.
    21. Elisabetta Montanaro & Mario Tonveronachi, 2011. "A critical assessment of the European approach to financial reforms," PSL Quarterly Review, Economia civile, vol. 64(258), pages 193-226.
    22. Hyun Song Shin, 2009. "Securitisation and Financial Stability," Economic Journal, Royal Economic Society, vol. 119(536), pages 309-332, March.
    23. Mr. Stijn Claessens & Mr. Lev Ratnovski & Mr. Manmohan Singh, 2012. "Shadow Banking: Economics and Policy," IMF Staff Discussion Notes 2012/012, International Monetary Fund.
    24. Arnold, Patricia J., 2009. "Global financial crisis: The challenge to accounting research," Accounting, Organizations and Society, Elsevier, vol. 34(6-7), pages 803-809, August.
    25. HyunSong Shin, 2009. "Securitisation and Financial Stability," Economic Journal, Royal Economic Society, vol. 119(536), pages 309-332, March.
    26. Jan Kregel, 2011. "Uscire dalla crisi finanziaria statunitense: la politica domina l’economia nella Nuova Economia Politica," Moneta e Credito, Economia civile, vol. 64(253), pages 15-30.
    27. Shin, Hyun Song, 2010. "Risk and Liquidity," OUP Catalogue, Oxford University Press, number 9780199546367, Decembrie.
    28. Lance Taylor, 2008. "A foxy hedgehog: Wynne Godley and macroeconomic modelling," Cambridge Journal of Economics, Oxford University Press, vol. 32(4), pages 639-663, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bianco, Antonio, 2015. "Relationship Banking, Shadow Banking, and the Economics of Depression," MPRA Paper 65849, University Library of Munich, Germany.
    2. Caiani, Alessandro & Godin, Antoine & Caverzasi, Eugenio & Gallegati, Mauro & Kinsella, Stephen & Stiglitz, Joseph E., 2016. "Agent based-stock flow consistent macroeconomics: Towards a benchmark model," Journal of Economic Dynamics and Control, Elsevier, vol. 69(C), pages 375-408.
    3. Antonio Bianco & Claudio Sardoni, 2018. "Banking theories and macroeconomics," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 41(2), pages 165-184, April.
    4. Steffen Murau, 2017. "Shadow money and the public money supply: the impact of the 2007–2009 financial crisis on the monetary system," Review of International Political Economy, Taylor & Francis Journals, vol. 24(5), pages 802-838, September.
    5. Tobias Adrian & Adam B. Ashcraft & Nicola Cetorelli, 2013. "Shadow bank monitoring," Staff Reports 638, Federal Reserve Bank of New York.
    6. Neuhann, Daniel, 2016. "Macroeconomic effects of secondary market trading," ESRB Working Paper Series 25, European Systemic Risk Board.
    7. E. Chrétien & V. Lyonnet, 2017. "Traditional and Shadow Banks during the Crisis," Débats économiques et financiers 27, Banque de France.
    8. Neuhann, Daniel, 2017. "Macroeconomic effects of secondary market trading," Working Paper Series 2039, European Central Bank.
    9. Tobias Adrian & Nellie Liang, 2018. "Monetary Policy, Financial Conditions, and Financial Stability," International Journal of Central Banking, International Journal of Central Banking, vol. 14(1), pages 73-131, January.
    10. Jo Michell, 2017. "Do Shadow Banks Create Money? ‘Financialisation’ and the Monetary Circuit," Metroeconomica, Wiley Blackwell, vol. 68(2), pages 354-377, May.
    11. Wei, Xin & Liu, Xi & Zhang, Xueyong, 2022. "Shadow banking and the cross-section of stock returns," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 81(C).
    12. Phil Armstrong, 2020. "Can Heterodox Economics Make a Difference?," Books, Edward Elgar Publishing, number 19964.
    13. Yamamoto, Shugo, 2020. "Banking Network Multiplier effects on cross-border bank inflows," International Review of Economics & Finance, Elsevier, vol. 70(C), pages 493-507.
    14. Xiao, Shuhua & Zhu, Shushang & Wu, Ying, 2023. "Asset securitization, cross holdings, and systemic risk in banking," Journal of Financial Stability, Elsevier, vol. 67(C).
    15. Ongena, Steven & Kara, Alper & Marqués-Ibáñez, David, 2011. "Securitization and lending standards: evidence from the wholesale loan market," Working Paper Series 1362, European Central Bank.
    16. Andrea Ajello & Nina Boyarchenko & François Gourio & Andrea Tambalotti, 2022. "Financial Stability Considerations for Monetary Policy: Theoretical Mechanisms," Staff Reports 1002, Federal Reserve Bank of New York.
    17. Ye Li, 2018. "Fragile New Economy: The Rise of Intangible Capital and Financial Instability," 2018 Meeting Papers 1189, Society for Economic Dynamics.
    18. He, Zhiguo & Kelly, Bryan & Manela, Asaf, 2017. "Intermediary asset pricing: New evidence from many asset classes," Journal of Financial Economics, Elsevier, vol. 126(1), pages 1-35.
    19. Lauretta, Eliana, 2018. "The hidden soul of financial innovation: An agent-based modelling of home mortgage securitization and the finance-growth nexus," Economic Modelling, Elsevier, vol. 68(C), pages 51-73.
    20. Krishnamurthy, Arvind & Muir, Tyler, 2017. "How Credit Cycles across a Financial Crisis," Research Papers repec:ecl:stabus:3579, Stanford University, Graduate School of Business.

    More about this item

    Keywords

    liquidity risk; animal spirits; originate-to-hold; originate-to-distribute; securitisation; financial sustainability; ex ante impact evaluations;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:psl:pslqrr:2015:43. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Carlo D'Ippoliti (email available below). General contact details of provider: http://www.economiacivile.it .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.