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Shadow banking and the funding of the nonfinancial sector

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  • Joshua H. Gallin

Abstract

I show how to use data from the Flow of Funds Accounts of the United States to estimate how much funding of nonfinancial businesses, households, and governments is provided by the domestic shadow banking system. I define the shadow banking system as the set of entities and activities that provide short-term funding outside of the traditional commercial banking system, but I do not equate all nonbank funding with shadow banking. My results suggest that at the end of 2008, domestic shadow-bank funding of the nonfinancial sector was an important, but fairly modest source of funding relative to that provided by more traditional funding sources such as commercial banks, insurance companies, and pension funds. However,my results suggest that domestic shadow banking played a large role in the increase of nonfinancial-sector debt in the two years before 2008:Q4 and was, at least in an arithmetic sense,the entire reason for the slowdown in nonfinancial-sector debt growth after 2008. Domestic shadow-bank funding of the nonfinancial sector has increased since 2010, but remains well below the level seen right in late 2008.

Suggested Citation

  • Joshua H. Gallin, 2013. "Shadow banking and the funding of the nonfinancial sector," Finance and Economics Discussion Series 2013-50, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgfe:2013-50
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    References listed on IDEAS

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    1. Acharya, Viral V. & Schnabl, Philipp & Suarez, Gustavo, 2013. "Securitization without risk transfer," Journal of Financial Economics, Elsevier, vol. 107(3), pages 515-536.
    2. Ingo Fender & Patrick McGuire, 2010. "European banks' US dollar funding pressures," BIS Quarterly Review, Bank for International Settlements, June.
    3. Carol C. Bertaut & Laurie Pounder Demarco & Steven B. Kamin & Ralph W. Tryon, 2011. "ABS inflows to the United States and the global financial crisis," International Finance Discussion Papers 1028, Board of Governors of the Federal Reserve System (U.S.).
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    Cited by:

    1. repec:eee:finsta:v:32:y:2017:i:c:p:124-141 is not listed on IDEAS
    2. Tobias Adrian & Adam B. Ashcraft & Nicola Cetorelli, 2013. "Shadow bank monitoring," Staff Reports 638, Federal Reserve Bank of New York.
    3. Adrian, Tobias, 2014. "Financial stability policies for shadow banking," Staff Reports 664, Federal Reserve Bank of New York.

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