IDEAS home Printed from https://ideas.repec.org/p/saq/wpaper/05-15.html
   My bibliography  Save this paper

Shadow Banking, Relationship Banking, and the Economics of Depression

Author

Listed:
  • Antonio Bianco

    () (Dipartimento di Scienze Sociali ed Economiche, Sapienza University of Rome (Italy).)

Abstract

A simple stock-flow consistent methodological account of the influence of financial markets over the real economy is here presented. The model is so devised as to allow a tidy comparison of relationship or shadow banking interpreted as alternative schemes of liquidity (not credit) risk management. The essential mechanism that is here at work is that fluctuations in the composition of property incomes lead to fluctuations in borrowing for non-financial purposes that, in their turn, drive fluctuations in spending. Having this in mind, the model emphasizes the interdependencies in entrepreneurs’ variations in animal spirits, financial institutions’ idiosyncratic liquidity risk management (ILRM), and households’ effective demand. The model key finding is that both relationship and shadow banking entail a pro-cyclical impact and that differences implied in the two cases can be reduced to the different ILRM aggregate cost functions. As for policy implications, the model suggests that securitisation is not per se leading to financial unsustainability, yet regulatory measures aimed at checking predatory lending and the CDO industry are needed: failing these, securitisation is likely to have a depressive impact on non-financial entrepreneurs’ confidence, and hence on the financial sustainability of a growth process.

Suggested Citation

  • Antonio Bianco, 2015. "Shadow Banking, Relationship Banking, and the Economics of Depression," Working Papers 5/15, Sapienza University of Rome, DISS.
  • Handle: RePEc:saq:wpaper:05/15
    as

    Download full text from publisher

    File URL: http://www.diss.uniroma1.it/sites/default/files/allegati/DiSSE_Bianco_wp5_2015.pdf
    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 G & 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. 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.
    8. Vitaly M. Bord & Joao 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.
    9. Alan Moreira & Alexi Savov, 2014. "The Macroeconomics of Shadow Banking," NBER Working Papers 20335, National Bureau of Economic Research, Inc.
    10. Luck, Stephan & Schempp, Paul, 2014. "Banks, shadow banking, and fragility," Working Paper Series 1726, European Central Bank.
    11. Marchionatti, Roberto, 1999. "On Keynes' Animal Spirits," Kyklos, Wiley Blackwell, vol. 52(3), pages 415-439.
    12. 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.
    13. Zoltan Pozsar, 2014. "Shadow Banking: The Money View," Working Papers 14-04, Office of Financial Research, US Department of the Treasury.
    14. 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.
    15. 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.
    16. 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.
    17. 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.
    18. HyunSong Shin, 2009. "Securitisation and Financial Stability," Economic Journal, Royal Economic Society, vol. 119(536), pages 309-332, March.
    19. 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.
    20. Shin, Hyun Song, 2010. "Risk and Liquidity," OUP Catalogue, Oxford University Press, number 9780199546367.
    21. Mehrling, Perry, 1999. "The vision of Hyman P. Minsky," Journal of Economic Behavior & Organization, Elsevier, vol. 39(2), pages 129-158, June.
    22. 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.
    23. 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.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    animal spirits; endogenous money; liquidity risk management; securitisation; originate-to-hold; originate-to-distribute.;

    JEL classification:

    • B52 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Historical; Institutional; Evolutionary; Modern Monetary Theory;
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:saq:wpaper:05/15. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Pierluigi Montalbano). General contact details of provider: http://edirc.repec.org/data/dtrosit.html .

    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 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.